"Fitch notes that a characteristic of 'AAA' sovereigns, in addition to a high level of debt tolerance, is their capacity and willingness to enact policy responses appropriate to maintain the health of both the economy and the public finances over the medium- to longer-term."...and gentlemen close the door behind themselves, do not track mud on the floors, and most certainly do not blow their nose in the dinner napkins.
Fitch: US Fiscal Risks Rising after GSE Rescue, But Within 'AAA' Tolerances
10 Sep 2008 11:17 AM (EDT)
Fitch Ratings
London/New York-10 September 2008: Fitch Ratings said today that fiscal risks faced by the US government have risen following the recent rescue package for the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, but these remain within the tolerances of the US's 'AAA' sovereign rating. Fitch affirmed the US federal government's Long-term Issuer Default 'AAA' rating with a Stable Outlook on 7 September 2008.
The measures announced by the Treasury on 7 September 2008 effectively shift these two GSEs into the public sector. Their combined gross debt liabilities were equal to USD1,635bn at end-June 2008 or 11.4% of GDP, with additional guarantees of USD3,483bn (in gross terms) or 24.3% of GDP....
General government gross debt (which includes federal, state and local government debt but excludes public sector financial companies and guarantees) was equivalent to 57.1% of GDP at end-2007. With the fiscal deficit expected to widen sharply this year as a result of the economic slowdown and the fiscal stimulus package, Fitch expects general government debt to rise to 59.5% of GDP at end-2008 even before any capital injections to the two GSEs. Overall Fitch now judges the US government's balance sheet strengths to be broadly on a par with those of other large 'AAA'-rated sovereigns with relatively high public debt levels, such as France and Germany where general government debt is projected to be 64.3% and 63.5%, respectively, at-end 2008.
The US's 'AAA' rating is supported by its large, high income, and flexible economy and the government's unfettered access to market financing, both at home and abroad. The dollar's unthreatened status as a global reserve currency mitigates concerns about the rise in the economy's net external debt in recent years associated with sustained current account deficits.
Fitch notes that a characteristic of 'AAA' sovereigns, in addition to a high level of debt tolerance, is their capacity and willingness to enact policy responses appropriate to maintain the health of both the economy and the public finances over the medium- to longer-term. (This was the warning in a velvet glove - Jesse)
Contact: Brian Coulton, London, Tel: +44 (0) 207 682 7497; Eileen Fahey, New York, + 1 312 368 5468.
