Thursday 8 December 2016

Ratings agency stands to lose most if it follows through

Felix Salmon

Published 19/04/2011 | 05:00

It's known as Stein's Law: if something can't go on forever, it won't. And it's the reason S&P has now revised its outlook on the US sovereign credit rating:

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With debt-to-GDP north of 80pc, it becomes very hard for the US to pay for another large shock. According to S&P, fully recapitalising Fannie and Freddie could cost 3.5pc of GDP, other government-guaranteed debt (like student loans) could also cause enormous losses; and another banking crisis could cost a whopping 34pc of GDP.

And that's before you even start thinking about the inexorable rise in Medicare costs as healthcare costs rise and the US population ages.

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