Will the U.S. ever get its triple-A back?
I went on All Things Considered last night, and told Guy Raz that “once you lose your AAA, it’s gone” — following that up for good measure with the statement that “I cannot remember the last time that anyone got upgraded to AAA.” But was I right? Reckoning that if I was going to opine about such things on national radio, it might be a good idea to have a vague idea of what the truth of the matter is, I put the wonderful Roy Strom on the case. And he found this list of all S&P sovereign ratings actions since 1975.
The last time that a country became triple-A was February 16, 2004, when Sweden got upgraded from AA+. The triple-A-sovereign club currently has 16 members, including Sweden. The US has had the top rating since 1941; the next longest-serving member of the club is France, which got its triple-A in June 1975. Then, in order, come Austria, the UK (1978), Germany (1983), Switzerland, Holland, Luxembourg, Singapore, New Zealand, Liechtenstein, Denmark, Finland, Canada, and Australia.
The most recent entries on the list — Denmark, Finland, Canada, Australia, and Sweden — are all countries which got downgraded and then reinstated. And when you do lose your triple-A, you have to expect to remain in the wilderness for at least a decade. Australia, for instance, was downgraded in 1986, and only got back into the club in 2003. The record from downgrade to reinstatement is held by Canada, which was downgraded in October 1992, and got its triple-A back 9 years and 9 months later in July 2002.
The list of triple-A sovereigns is very, very white — Singapore is the only exception to the whites-only rule. (And Hong Kong, if you allow sub-sovereigns: it got its triple-A in December.) It seems inevitable that the future is going to be a story of white countries falling off the list, with non-white countries joining it, led by Taiwan. But in the short term, a US downgrade would simply just make the list shorter — and there are bound to be lots of reports about how the US has a lower credit rating than Liechtenstein.
My guess is that once the US loses its triple-A, it’ll be gone forever. Downgrading the US is something no credit rating agency wants to do; you know they’ve been dragging their heels on this one. The debt-ceiling debate alone is sufficient reason to downgrade the US: if we came that close to defaulting, there’s no way that our securities can be risk-free. A downgrade will merely be a late-to-the-party recognition of that fact. And once it’s recognized, it can’t be forgotten.