What does it take to risk losing your triple-A status? For Moody’s, your AAA-rating starts to become an issue once interest payments reach 10% of your revenue.
Unfortunately, given rising debts and falling tax revenues, the US could hit this level as soon as 2012. While Moody’s has recently stated that America’s AAA isn’t at risk, they have definitely started to give the US some polite nudging.
WSJ: In its report Wednesday, Moody’s singled out the U.S. and the U.K. as two countries that “have lost altitude” among those with triple-A ratings, but noted they remain in the group of “resilient” economies, better placed to keep their ratings intact than Spain, which it called “vulnerable.”
“Although highly unlikely, it’s conceivable that a large and wealthy economy could lose its Aaa rating if it were to experience a material and irreversible deterioration in its debt conditions over the next five years or so, following the fate of Japan in the 1990s,” said Pierre Cailleteau, managing director of Moody’s Sovereign Risk Group.
Given the higher interest costs that would come with a ratings downgrade, hopefully the risk of losing triple-A status alone will spur increased fiscal responsibility. If this seems like a pipe dream, then maybe the ratings agencies can stretch their criteria just one more time for old times’ sake.
And if they don’t, well, we hope they remember their privileged regulatory status…