■ The United States coughed.
Credit rating agency Pitch hit the United States. He lowered his credit rating. She lowered her credit rating from AAA to AA +.
A country’s credit rating is an evaluation of a country’s ability or willingness to pay off debt. This rating is the ‘ceiling of credit ratings’ for companies within individual countries. In other words, it becomes the ‘top’ of the credit rating that a country’s company can receive when ‘financing debt with bonds denominated in foreign currency (usually dollars)’.
So, if the country’s credit rating falls, it could raise the cost of financing for American companies. America has no choice but to be angry.
US Treasury Secretary Janet Yellen called it “arbitrary” and “outdated”.
The White House also stepped in. White House press secretary Carine Jean-Pierre issued a statement shortly after Fitch’s downgrade. The rating standard went down during the Trump administration and then rose during the Biden administration, so why are you downgrading the rating of the United States, which is the world’s strongest economic recovery at this point?”
The ruling US Democratic Party criticized the opposition. (Politics is also to blame.) Democrats on the House Ways and Means Committee called it “the result of Republican-created defaults” that “repeatedly jeopardize complete trust and confidence in the country and are responsible for this downgrade.” “he pointed out.
① Let’s start with governance. This refers to the ‘debt ceiling negotiation confrontation’ that occurred at the beginning of this year. At the time, even as the National Financial Default Day ( X-Date ) approached, the ruling and opposition parties in the United States only blamed each other and fought.
In particular, Fitch assessed that this was not a ‘temporary event’, but that “governance standards have steadily deteriorated over the past 20 years.” It is said that ‘resolving major issues in the national economy at the last minute is being repeated’. Moreover, despite an agreement reached in June, “financial and debt issues remain,” he said.
② Regarding the national budget deficit, Fitch forecasts that “the US government budget deficitwill soar from 3.7% of GDP in 2022 to 6.3% in 2023 in the aftermath of a decrease in tax revenue, an increase in fiscal spending, and an increase in interest burden.” I did. It is then analyzed that it will continue to increase to 6.6% in 2024 and 6.9% in 2025.
That is to say, the additional debt each year will continue to increase, rather than decrease. Considering thatthe standard for soundness of the national debt established by our government is 3% of GDP , you can guess how big the figure is.
③ National debt will inevitably increase. This is because when the budget deficit accumulates, it becomes the national debt. Let’s compare it to a ‘reservoir’. The fiscal deficit is the new flow of water into the reservoir.: flow rate). National debt is a ‘reservoir’ created by flowing water. This is the accumulated debt ( Stock ). When the stream of fiscal deficits builds up, the reservoir of national debt fills up.
The US national debt has already exceeded 100% of GDP in the process of overcoming COVID-19. Looking back at the various concerns that came out when we crossed the 40% line, you can guess what the level is. If the reservoir is already full and the water level is ‘going higher and higher, and even faster’, you have no choice but to worry.
“Over the next decade, rising interest rates and rising debt will increase interest payment burdens, and an aging population and rising health care costs will increase spending on the elderly unless fiscal reforms are implemented,” Fitch said. There is no sign that things are getting better.
In addition, it mentions the possibility of a US recession in the future. “Deteriorating credit conditions, lower investment and lower consumption will push the US economy into a mild recession in the fourth quarter of this year and the first quarter of next year,” he said.
■ But body aches are ours.
Why do we need to know so much about America’s problems? Because their cough becomes our body aches.
First, US Treasury yields fell slightly. Even if your credit rating goes down, interest rates don’t go up, they go down. The reason can be interpreted as ‘safe asset preference psychology’. When the US coughs, the world is worried, and when it is worried, ‘safe asset preference’ is strengthened, and demand for US government bonds increases.
The US dollar is not weakening too much. In fact, the dollar index, which measures the value of the dollar against major national currencies, does not appear to fall significantly. (If Fitch had ‘downgraded Korea’s credit rating’, it would have been completely different. Our financial market would have gone through ‘great chaos’.)
Rather, the situation is paradoxical. The exchange rate of the Korean won rises. This means that the value of the won has fallen. Today, the won-dollar exchange rate in our foreign exchange market opened at 1,287.5 won, up 3.7 won per dollar, exceeding the 1,290 won range and threatening the 1,300 won line. This is partly due to the situation in which the won is exchanged for foreign currency due to demand for overseas travel during the holiday season, but the impact of the US credit rating downgrade cannot be ignored.
It is also interpreted as a preference for safe assets. When the US coughs, the world worries, and when it is worried, the ‘safety asset preference’ is 먹튀검증strengthened, and it prefers the dollar, a safe asset, to the won, a risky asset.
The government held a ‘president situation inspection meeting’. It means to be vigilant and watch even if nothing happens right away. Bang Ki-seon, 1st Vice Minister of Strategy and Finance, said, “We will strengthen market monitoring while being wary of the possibility of increasing volatility in the domestic and overseas financial markets.”
We’re not alone. Asian stock markets and exchange rates are generally bearish.
■ It was the same in 2011… There is a sense of déjà vu that the gravity of the international financial market is the same
. This time it was pitch, but in 2011 it was Standard & Poor’s ( S&P ). At that time, S&P downgraded the US sovereign credit rating from AAA to AA +. The reason is the same as now. Even at that time, negotiations between US politicians on raising the national debt ceiling were difficult.
There was a lot of confusion at the time. The action sent US stocks down more than 15%. The international financial market was shocked.
In particular, the Korean won exchange rate soared, and the Korean government was in an emergency with capital outflows. Shares are down 17% in six trading days. A sell-off has occurred.
Fortunately, the market doesn’t seem to be that surprised right now. So far, neither the impact on the United States nor the ripple effect on us is significant. The market points out that there is a ‘learning effect’ about the effect because it is not the first time that the US debt ceiling negotiations have been difficult.
But nothing is over yet. “The market will be double-faced,” said David Croy, strategist at Australia and New Zealand Banking Group (ANZ) in Wellington
. “It could lead to buying safe assets such as Treasury bonds and the dollar,” he said.
It is a story that the gravity of the global financial market that bothers us is the same then and now. America doesn’t get sick from coughing. Body aches are likely to be our share.