Ouch! U.S. booted from Triple-A debt club

Source: CNN money
By Annalyn Censky @CNNMoney August 6, 2011: 2:52 PM ET

These 15 countries (and the Isle of Man) have the world's highest credit rating, AAA from both Moody's and Standard & Poor's. The U.S. lost that high standing Friday, when S&P downgraded it to a AA+ rating.

NEW YORK (CNNMoney) -- The Triple-A debt club just got even more exclusive: Late Friday, the United States was booted out of a prestigious group of countries that boast a spotless credit rating.

Now only 15 countries (and the very small Isle of Man) hold the triple-A rating from both Standard & Poor's and Moody's.

Canada, France, Germany, Norway, Sweden and Switzerland are among those with the undisputed stamp of approval -- so is Isle of Man, a British crown dependency off the United Kingdom's west coast, and Singapore (both of which are too small to see on our CNNMoney map above.)

The triple-A rating enables nations to borrow funds at a low cost, because their governments are considered stable and their bonds safe.

S&P downgrades U.S. credit rating

The United States for example, has seen its dollar become the world's No. 1 reserve currency because its bonds are held in such high regard by investors. They're backed by the "full faith and credit of the U.S. government" -- which until now, has never seriously been called into question.

On Friday, S&P downgraded the United States to AA+, an investment grade level just one notch below triple-A. It marked the first time the world's largest economy has been downgraded, since Moody's first gave the country a credit rating in 1917.

S&P cited estimates that U.S. government debt would balloon to 79% of the size of the entire U.S. economy by 2015, and 85% by 2021 -- a level S&P says is consistent with AA+ rated countries.

In comparison, estimates from the International Monetary Fund show triple-A rated Canada's debt is likely to only rise to 34% of its economy by 2015, and Germany's is forecast to rise to 52%. (The IMF does not publish forecasts out to 2021).

Your money in a AA-rated U.S.

The debt of Belgium, another AA+ rated country on S&P's list, is expected to grow to 85% of GDP by 2015, according to the IMF.

Abu Dhabi, with a AA rating, is just a step below AA+. Also in that group are Bermuda, Chile, Qatar, Slovenia and Spain.

Meanwhile, China -- the world's second largest economy -- is rated two notches below the United States, at AA-.

Greece -- the lowest rated country in the world -- is forecast to see its debt well exceed the size of its economy, at 149% the size of its GDP in 2015. 

First Published: August 6, 2011: 11:47 AM ET

Canada keeps AAA credit rating

Image via Wikipedia

BY ERIC LAM, POSTMEDIA NEWS JULY 28, 2011

As the debt spectacle continues in Washington, Moody’s Investor Service renewed Canada’s AAA credit rating on Thursday.

While all eyes are on the United States as it tries to hammer out a deal to raise its borrowing limit by Aug. 2, avoid a debt default and a possible debt downgrade, Canada sailed through its annual credit checkup with flying colours.

Moody’s said the country’s high resiliency, government financial strength and low susceptibility to risk were key to the top marks.

Here’s a breakdown of the reasons why Moody’s says Canada deserves the highest possible credit rating:

Economic strength: Very high.

Canada missed the worst of the financial crisis because of the financial strength of its banks and only a mild downturn in the housing market.

The country had a stronger rebound from the recession, with a 3.2-per-cent rise in gross domestic product, compared with 2.9 per cent south of the border. Moody’s said monetary policy and Ottawa’s stimulus program helped the recovery.

There are important differences between the Canadian and U.S. economies that affected Moody’s evaluation of Canada’s strength, including the fact that trade in goods and services makes up more than half of Canada’s GDP, compared with less than one- third in the U.S. This points to a greater degree of openness in the economy, it said.

Canada also has lower federal debt and a stronger banking system and housing market, as well as a higher domestic saving rate, resulting in less reliance on external financial markets.

Institutional strength: Very high.

Fiscal discipline at the Bank of Canada, inflation control, government effectiveness and rule of law all rank highly.

Economic and fiscal policies have remained stable for the past 15 years under Liberal and Conservative governments. Some tax differences exist, but the overall goal of fiscal balance and declining debt has been a constant.

While the proportion of total government debt credited to provincial, territorial and local governments is the highest among major countries, and Moody’s judges the risk of the federal government having to step in to assist these governments with their debt payments as high, it said local ratings indicate little risk that such assistance would actually be needed.

Government financial strength: Very high.

This evaluation is based on a well-established pattern of budget surpluses at the federal level, except during exceptional circumstances such as the financial crisis, leading to declining government debt and debt ratios since the 1990s.

Susceptibility to event risk: Low.

The most important risks are related to the housing market and to separatism in Quebec, although the probability of either affecting Canada’s rating is quite low.

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