Posted 2 years ago on Sept. 30, 2012, 10:24 a.m. EST by hazencage
This content is user submitted and not an official statement
1.Japan and Britain have had higher GDP/debt ratios then ours for years. In fact Japan's GDP debt ratio has been in the 200% for a long time now and continues to grow, but they still have not defaulted. On the other hand the united states is likely to reach a GDP/debt ratio of 102% by 2016, and therefore our sovereign debt will still remain in good shape comparable to countries that also have a AAA bond rating score, and a similar economy.
In 2001 Japan had their debt downgraded by S&P, but despite this downgrade the Japanese ten year bond is still one percent in present times. Therefore Japan, which has a higher GDP-to-Debt ratio when compared to us, is still able to run a deficit. Thus as long as the interest rates on our bonds remain low, the United States can continue to run a deficit, but most importantly the simple lesson is this. As long as our bonds continue to posses a low interest rate, then it is most likely that investors will continue to help fund our debt. Furthermore even if an independent credit rating downgrades us it doesn’t mean the United States runs the risk of a sovereign debt crisis. Instead it simply implies that the final arbiter in regards to our deficit is the interest rate on our bonds.
CIA world fact book and a internet article commenting on "This Time Is Different: Eight Centuries of Financial Folly".
“credibility, Chutzpah and Debt” nytimes.com. Paul Krugman Web. 7 Aug. 2011.