Despite the strength of the United States to service its debts, recent events have shaken the opinion of ratings firm DBRS.
Most concerning is the use of the threat of default and the shutdown of the government as bargaining tools in the debates. DBRS writes:
If the recurring threat of a short-term default is extinguished, our sights will turn to the longer term issue of debt sustainability. In this regard, the U.S. debt to GDP ratio, at an estimated 106% of GDP in 2013, looks manageable.Sponsor Content
However, given the higher debt stock that the United States now has to service, it is becoming like other sovereigns, and less the exception to the rule; despite its safe-haven status, a stable interest rate environment is needed to stabilize the debt ratio.
However, even as long-term interest rates rise following the tapering of the Fed’s quantitative easing program, the GDP growth rate should continue to be equal to or above the real rate of interest, thereby stabilizing the debt ratio.
Further stabilizing the debt ratio is the automatic spending cuts (the sequester), which may be extended into 2014.