It seems Fitch is trying to scrape together some credibility after having betrayed the misplaced trust of those who believe in the ratings agencies’ fundamentally corrupt business model of being paid by the companies they rate. Their partners in crime are not amused.
It’s very risky for an American credit ratings agency to downgrade the US Government.
Standard & Poor’s found out when it stripped the US off its AAA rating in 2011 over the debt-ceiling charade. The Department of Justice then sued S&P over its role in the financial crisis, i.e. for slapping AAA-ratings on toxic securities to pocket fatter fees from issuers. But the other ratings agencies did the same thing and have not been hounded. So S&P claimed that the “impermissibly selective, punitive and meritless” lawsuit was “in retaliation” for the downgrade.
Though the Government denied the retaliation angle, it was a lesson no credit ratings agency within the long and sinewy arm of the Government would ever forget. But now Fitch is inching gingerly toward that abyss. While it affirmed (text) the US at AAA, Outlook Stable, it threw in some potentially devastating caveats.
What drives America’s dubious AAA-rating? “Unparalleled financing flexibility as the issuer of the world’s pre-eminent reserve currency….”
So endowed, “the US rating can tolerate a higher level of public debt than other ‘AAA’ sovereigns.” The “threshold” for the US is a gross national debt of 110% of GDP, the highest threshold of any country “owing to its exceptional financing flexibility.” But if the US hits that 110%, it would be “incompatible with ‘AAA.”’ …