U.S. Receives a “Negative” Outlook

Standard & Poor’s downgraded its outlook for the United States credit rating from “stable” to “negative.” The agency is fearful that the level of government debt is too high. Russian analysts also point out that in the future, the U.S. might have trouble servicing its foreign debt.

The U.S. credit rating could be lowered for the first time in history. Rating agency Standard and Poor’s (S&P) affirmed the excellent credit rating of the United States, but changed the outlook from “stable” to “negative.” According to the company’s assessment, the main threat to the American economy is the lack of a unified strategy for its improvement.

The Head of International Business and Financial Institutions Department in the Russian Federation, Yuri Amvrosiev, thinks the main issue that could bring down the U.S. rating is the high level of government debt.

“This needed to be taken care of a lot earlier. The current U.S. foreign debt situation remains pretty bad for sure, if not critical,” noted Amvrosiev, “and the question about the outlook comes from the fact that once again there is talk of raising the levels of this debt. The United States’ ability to service this debt might cause problems in the long run.”

It is unlikely that the U.S. rating will indeed be lowered, thinks the head of the Department of Market Operations of the financial management company “Партнер,” Andrei Mordavenchenkov.

“I honestly do not believe that the rating will be lowered. I think that what they just did is an excuse for the financial reserve to start preparing for a cycle of rate increases, what many have long been waiting for,” said the expert. “The U.S. economy will recover. First they will finish the program of quantitative mitigation, then they will begin the cycle of rate increases.”

Until now the U.S. rating has been considered the most reliable in the world.

The United States consistently has the highest credit rating, AAA. It did not decrease even during the crisis. The volume of U.S. government debt exceeds $14 trillion. The leading foreign holder of U.S. bonds is China. It owns securities worth more than $1 trillion.

In early 2010, Moody’s warned that the credit rating of the United States may be lowered due to the extremely high level of public debt. This happened after the authorities approved its expansion by almost $2 trillion. In early 2011 S&P expressed similar concerns.

The S&P decision lead to the collapse of almost all world indexes. Russian MMVB closed out with almost a 4 percent drop.