Column by Dmitry Butrin on the absolute and relative significance of the new Fitch rating for the US

Even on formal grounds, the downgrading of the US country rating by Fitch Ratings cannot be considered an event of little significance. More than a decade ago, in 2011, S&P deprived the United States of the highest rating, and then the emotionality of this decision and its “meaningful”, rather than calculated de facto value was confirmed by the fact that the US Treasury Department immediately discovered an arithmetic error in the S&P report of $ 2 trillion – and the rating agency, recognizing it, explained that the meaning of its decision has not changed. Time has shown that S&P was right in its inattention: the agency’s 2011 calculations suggested that by 2021 the US federal government’s debt would exceed $22 trillion, while the formulas capped it at $20 trillion. But in 2021, which actually happened, the debt still exceeded $22 trillion (and now it is over $24 trillion), and nothing has changed since then. Now Fitch has made a similar decision and, in fact, with the same factual justifications as at the time S & P – the mechanisms to curb the growth of US public debt are problematic.

If we were talking about an ordinary jurisdiction, in respect of which the “two out of three” rule is always considered to work (the full scales of the “troika” – S&P, Fitch and Moody’s are not comparable, but their assessments of the solvency of jurisdictions rarely differ by more than a step – and two coinciding assessments considered by the markets to be something like a consensus), then it would be a sensation: the United States, the issuer of the world’s main currency, is no longer an economy, borrowing in the currency of which is minimally risky. But in this case, one would have to assume that a borrower from the US (country rating AA+ from Fitch and S&P) is, all other things being equal, less reliable than a borrower from Canada or Australia (rated AAA). However, the flight of investors into neither the Canadian nor the Australian dollar, which would be logical to observe after Fitch’s decision, of course, did not happen. On the contrary, there was a predictable (and rather small-scale) flight from the “dollar crash” into the same dollar, into the US government debt, and the secondary consequences of the event, such as fluctuations in US long-term loan rates, exhausted themselves in a few days. That is, the reaction of the markets to Fitch’s decision confirmed that the dollar here and now is still the world’s reserve currency.

The paradox with the US country rating is that it both should and cannot be considered as the ceiling of the world public debt rating. Technically, there may be lenders in the world who are safer (in terms of default risks) to borrow than the White House. But while the dollar remains the pillar of world finance, countries, in the medium term, it is the US rating that is the ceiling for the world economy. But in practice, the meaning of Fitch’s statements is slightly different: risks are growing throughout the global economy, and there are no winners from this. While all this is only a theory, but it will inevitably be followed by practice.