Tuesday, August 2, 2011

Nice chart showing why a downgrade in our credit rating would be met with a yawn by ACTUAL purchasers of our debt...

The US Treasury issues a lot of debt (US Treasuries) --59% of the worlds supply of it (total debt issued by all nations).  When speaking about "default" and the credit rating/risk of the US, the question has to be asked "relative to what?" Even if our rating was downgraded, would it matter much, other than to hurt our pride?  While other countries might have a higher bond rating than the US, there are few places for people/governments to park their currency reserves for safe keeping.  It is a form of financial co-dependency. Do they need us just as much as we need them?...Not a relationship built on love...
Source: Matthew Yglesias
""America’s AAA-rating on our sovereign debt is useful to the American people. But it also plays a crucial role in the global economy as a whole. People and firms want access to safe sovereign debt for a variety of purposes. If we lose that rating, can people just start using German debt instead?

Basically, no. There’s not nearly enough German or French or British AAA-rated debt out there to play the kind of global role that U.S. Treasuries currently play. The world’s second largest economy, China, doesn’t have liquid capital markets, and the third largest economy, Japan, has already lost its AAA-rating.

[UPDATE] Incidentally, the “other” AAA-rated countries are the Netherlands, Australia, Austria, Norway, Singapore, Switzerland, Sweden, Denmark, Finland, Luxembourg, and Hong Kong. So the issue, as you can see, isn’t so much a shortage of non-U.S. AAA-rated sovereigns, it’s that these are all small countries who are highly rated in part because they don’t have very much debt outstanding.""---Matthew Yglesias
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