Negative outlook for US with $14 trillion debt
(21 April 2011 – United States) Markets have begun to question the ability of the world’s largest economy to rein in its ballooning debt.
Ratings agency Standard & Poor (S&P) changed its outlook on the US from "stable" to "negative", due to the bitter political disagreement over the handling of its US$14 trillion (A$ 13.4 trillion) public debt.
The US AAA rating was left unchanged, however this could be cut in the next two years, and a lower credit rating means the US government would have to pay more to borrow, which could stall any economic recovery.
The assessment had a global effect, local shares fell 1.4 percent and the Australian dollar pulled back half a US cent, major stocks ended sharply lower.
S&P’s warning also underscores broader concerns over how debt-laden countries across North America and Europe can continue to borrow to fund large budget deficits.
S&P is forecasting that US net government debt will amount to 84 percent of the country's total domestic output by 2013.
Even the ratings agency's most optimistic outlook puts the net debt at almost 80 percent of GDP within the next two years.
By comparison, Australia's general government debt burden is expected to peak at a little over 8 percent of GDP next year before rapidly falling, IMF estimates show. The average of countries carrying the AAA rating is 18.9 percent.
The Treasurer Wayne Swan said the debt challenges facing the United States could not be more different from the position in Australia.
''The situation in the US shows how important it is that difficult decisions such as necessary spending cuts are not delayed until such time that they need to be harsher and deeper,'' he said.
The US AAA rating was left unchanged, however this could be cut in the next two years, and a lower credit rating means the US government would have to pay more to borrow, which could stall any economic recovery.
The assessment had a global effect, local shares fell 1.4 percent and the Australian dollar pulled back half a US cent, major stocks ended sharply lower.
S&P’s warning also underscores broader concerns over how debt-laden countries across North America and Europe can continue to borrow to fund large budget deficits.
S&P is forecasting that US net government debt will amount to 84 percent of the country's total domestic output by 2013.
Even the ratings agency's most optimistic outlook puts the net debt at almost 80 percent of GDP within the next two years.
By comparison, Australia's general government debt burden is expected to peak at a little over 8 percent of GDP next year before rapidly falling, IMF estimates show. The average of countries carrying the AAA rating is 18.9 percent.
The Treasurer Wayne Swan said the debt challenges facing the United States could not be more different from the position in Australia.
''The situation in the US shows how important it is that difficult decisions such as necessary spending cuts are not delayed until such time that they need to be harsher and deeper,'' he said.
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