Rama Krishna Vadlamudi, HYDERABAD 15 August 2011
MY BLOG: www.ramakrishnavadlamudi.blogspot.com
What is the difference between AAA and AA+ rating?
According to the standard definition of S&P:
AAA : Extremely strong capacity to meet financial commitments. (Highest Rating)AA+ : Very strong capacity to meet financial commitments (just below AAA)
As can be seen from above, AAA is the highest rating and AA+ is just below AAA. Andstill AA+ rating is considered as one of the best credit ratings in the financial world.Other countries that are having AA+ rating are Belgium and New Zealand, as per S&P.
What is the US debt deal?
The US Congress had on August 2
approved a plan to raise the US debt level from thecurrent USD 14.3 trillion in the short turn while bringing down the overall deficit byUSD 2.4 trillion over the next 10 years. S&P is of the opinion that this USD 2.4-trilliondebt reduction is not sufficient and it prefers a USD 4-trillion deficit reduction instead.
What are reasons for the high level of US Government debt?
The United States of America has been living beyond its means – meaning the countryhas been spending more than its earnings – for more than a decade. At the end of president Bill Clinton’s term, the US has enjoyed huge budget surpluses. But afterGeorge Bush took over as president in 2001, the US economy has been hurtling towardone disaster after another. Economists and market pundits have been warning the USabout its debt burden for almost a decade. Due to the excessive spending, the USGovernment debt has mounted to a record USD 14.3 billion in May this year.
How is the US Government funding its fiscal deficit?
As the budget expenditure exceeds its revenues, the US Government every year raiseshuge money by selling its Treasury Securities and funds the fiscal deficit. The bonds arebought by various foreign governments that are having huge export surpluses. Some of the biggest holders of the US debt are: (in USD billion) China - 1,160; Japan – 910; theUK – 350; Brazil – 210; and Taiwan – 150. India holds USD 41 billion in US treasuries.Other investors in the US government debt are banks, pension funds, sovereign wealthfunds and individual investors.
Will investors sell US treasuries now?
A substantial portion of the US debt is held by central banks around the world. They maynot sell their holding of US treasuries as they do not have any worthwhile alternativeinvestments to buy at this point of time. Large holders of US debt, like, China, Japan andthe UK may hold US treasuries grudgingly for the time being unless a credible alternative