(Bloomberg)
And finally, here’s what Katie’s interested in this morning…
Fitch Ratings’ surprise move to strip US government debt of its top-tier rating this week sparked passionate criticism from Washington and Wall Street alike, with Treasury Secretary Janet Yellen deriding the downgrade as “arbitrary.” But to David Beers, former head of S&P Global Ratings’ sovereign debt scoring committee and one of the analysts behind the controversial ratings cut in 2011, it’s an important reminder that the US isn’t entitled to the top grade.
“The underlying fiscal position and underlying debt trajectory has picked up pace,” Beers, who is now a senior fellow at the Center For Financial Stability, told Romaine Bostick and I on
Bloomberg Television. “AAA is the top rating any rating agency can assign, but of course, the US and any other sovereign that’s being rated has no god-given or automatic right to that.”
Fitch’s move comes nearly 12 years to the day since S&P shocked markets by dropping the US one level to AA+ from AAA for the first time in history, a move helmed by Beers and John Chambers. Their reasoning more than a decade ago sounded startlingly similar to Fitch’s logic this week: ballooning US deficits and political dysfunction. Though May’s debt-ceiling drama ended with an as-expected last-minute deal, repeated debt-limit clashes and eleventh-hour resolutions have eroded confidence in the nation’s fiscal management.
For Beers, it’s a bit of a victory lap. S&P has yet to reverse the downgrade, and many of the issues flagged by the rating firm back in 2011 have only escalated since. If anything, other agencies have been a bit meek, he said.
“It’s fair to say that the rating agencies, based on their own criteria, have been pretty timid in their actions,” he said.
“If anything, Fitch’s action is simply confirming what S&P decided back in 2011, and here we are in 2023.”
