Showing posts with label U.S.Economy Standard and Poors.. Show all posts
Showing posts with label U.S.Economy Standard and Poors.. Show all posts

Wednesday, August 10, 2011


   The credit rating agency, Standard and Poors has reduced worthiness a notch below to AA+ from TripleA last weekend.  The U.S. was enjoying the highest position from 1917 onward, i.e. almost a century. The U.S economy weathered successfully the Great depression in 1929,  World wars and a global recession recently. However its budget deficit was increasing all these years mainly because of its domestic policies. The lower taxation, higher spending, Defense expenses and the recent recession, all contributed to the deficit. The 3 billion debt which was about 1.5% of the then G.D.P in 1946 has now become a stupendous 15 Trillion or 135 % of the G.D.P

 The economic problems are same for individuals and nations irrespective of its size. The fundamental principle is that spending should compromise with the income and the U.S had Forgotten the axiom for long. It spent money like no tomorrow for the whims and fancies of the ruling politicians. A serious debate about national debt was heard only when it touched its allotted limit and needed a congressional approval to obtain more debts.The leaders there are either indifferent or they have such a blind faith in the economical viability of the nation.

 The ancestors of present U.S.leaders had worked  hard to build such a strong nation but somewhere the spirit seems to have been lost  The present rate-cut is in fact a wake up call. The U.S. is such a resourceful country that  it can jump back to its earlier status if its leaders are prepared to bring the areas like Health care cost and taxes to the international standards and avoid reckless spending. While the health cost is high the tax is low to the international standards. The problem is vested interests that are against sweeping reforms.

 The rating agency 'Standard & Poors' seems to have made an error in their calculation to their embarrassment. Though it was a clerical mistake, it is not expected from a reputed agency to make errors while computing the credit worthiness of a nation, especially a nation like U.S.weilding such far-reaching financial influence round the Globe. The Agency conceded to having overlooked it,  to the White House treasury officials. The error was to the tune of two Trillion Dollars  which should have really prevented them from the rate-cut for now unless the agency based their judgment on a wider issue of political will of the nation to address serious matters of the State. While it is true that there is a lack of spirited approach by the politicians, some have raised doubts whether an agency need to go to such an extent. Actually in April the Standard and Poors had changed its outlook on AAA rating from Stable to Negative. And in July it placed the U.S.economy on credit watch but The U.S politics could not see the writing on the wall. It might have been the reason for the S & P to base its judgment on the political will of the nation.

The S & P, however, did a good thing in choosing the week end for the announcement and having got two days to ponder over the issue there were  lesser knee-jerk reactions in the stock market.