By Deepetanshu Singhvi
United States debt can be estimated to increase exponentially. With increased money owed comes an increase in the number of economic enigmas. For example, a series of shocks spread through-out the financial world when Standards and Poor 500 cut the long term Triple A US credit rating by one notch to a Double A plus. In fact, other nations’ debts are not inconspicuous. Just this week, various corporations have degraded the ratings of numerous European Countries including Spain, Italy, and countless others.
One of the biggest occasions in fluctuating credit ratings encompassed that of Spain. Fitch Ratings, a corporation parallel to S&P500, dropped Spain’s credit rating down by 2 notches (From an AA+ to an AA-). Spain’s rating, which was AAA until 2010, has been lowered twice due to its intensified involvement within the Euro crisis, slower growth, and failing attempts at recovery procedures. Fitch projects Spain’s growth pattern as it says it expects Spanish growth to remain below 2 percent a year through 2015. Additionally, they quantify the impotent recovery attempts as Spain is paying yields of around 5 percent on its 10-year bonds even after the European Central Bank stepped in to prop up its bond market on Aug. 8. Unemployment rates remain above 21% and regional governments expected to hire half of Spain’s public workers are behind schedule. In a general perspective, conditions are not favorable to bring any alleviation to the drastic economic status.
To further observe Fitch’s ratings, one should look to the Italian bond crisis. Fitch downgraded Italy’s rating by one notch to tie Italy with Spain, both being at an AA-. Being Europe’s second largest debt (owing 1.9 trillion dollars), many determine that Italy should boost it’s international credibility to keep its financial house proper while at the same time encourage the populous to spend more on the bond market. Italy has not only hit by one corporation but both Moody’s Investor Service and S&P500 have degraded the ratings by a considerable amount. Many cite that the cost preventing Italy’s debt to reach default has doubled since the dawn of this year. In similarity to the Spanish crisis, Italian economic growth has had many impediments. It is enumerated that the financial growth from 2001 to 2010 has constituted of about only 0.2% annually. However the staggering part is that Greece has to combat a more magnified issue. Condition within the European economies is not at all at a high point and until bond investors gain more trust within the economy, growth will remain minimal.
All in all, it is easy to say that the US isn’t alone when comparing debts. In wake of such adverse conditions credit ratings won’t be on the rise till there is the institution of a feasible solution. Generally, the governments of these countries need to enforce unique policies that can increase the certainty of return which in turn will facilitate of recovery rates.