28th January 2011
You don't downgrade the world's largest economy, the home of the world's reserve currency or do you?
Well with Japan downgraded a notch by S&P this week – take a look at what that did to the yen on ftalphaville here – is there any chance the US might follow suit?
Some commenters certainly think that if Japan deserves downgrading so is does the US.
Here on the Wall Street Journal Asia, Hidesato Sakakibara writes:
"What!? Japan's rating gets lowered while America's rating stays the same?!?!?!?! What is S&P thinking of? Yes, Japan has its problems. But compared to America we are a TRADE SURPLUS nation, most of our debt is FINANCED DOMESTICALLY (I can't imagine a Japanese citizen or corporation allowing the government to collapse), and we are busy trying to GET OUR ACT TOGETHER to solve this problem, such as lowering the corporate tax rate, boosting the consumption tax, and revamping our immigration policies to allow more to get citizenship. No, Japan is not perfect, but at least we make things that people want, and we don't go about starting endless, unnecessary wars for profit (at least not in the past 60 years, anyway). So if S&P finds it fit to lower Japan's rating to AA minus, then the US should get a CC minus rating. What a joke S&P and this whole rating game have become. America was a great country going down the drain, so I'm outta here come February. I will take Japan's problems any day."
So that is the slightly breathless Japanese view but does the US really have anything to fear.
FTAlphaville suggests that Moody's is whispering sternly that the US needs to get its act together.
The Daily Telegraph sees this as a warning shot for countries on at least other two continents.
However in the body of the article, analysts are less concerned with other countries' downgrades and more with the fact that Japan is a massive creditor for the rest of the world and if things went wrong it would have to reduce that support.
Here is the Telegraph's take. "The concern is that Japanese banks, pension funds and life insurers may forced to repatriate large sums to cover losses at home if the fiscal crisis triggers a jump in bond yields. This could set off a worldwide fall in asset prices."
Julian Jessop, from Capital Economics, said: "This is potentially a much bigger story than any default in Greece."
On the comment board, destroyerofworlds writes:
"Standard and Poors would never downgrade the US. These agencies will only lower the US's credit rating AFTER it has actually collapsed in ruins. Take no notice of what they have to say, it is all BS. dow."
On ftalphaville, Econoclast is less cynical and believes the US is strong enough to reform.