Is USA’s AAA Rating Legit?

The WSJ had a blurb Thursday about the the possibility of the UK’s debt being downgraded. It had a positive effect on the dollar as pounds were sold on the news. It raises another lingering question about the US debt. Is a AAA justified for US debt ?

As far as U.S. debt levels are concerned, an opinion piece in the Journal back in February by John Steele Gordon - author of “Hamilton’s Blessing: The Extraordinary Life and Times of Our National Debt” - calls the growth in U.S. debt “worrisome to put it mildly.” But he also provides a bit of context:

In January, the Congressional Budget Office projected that the deficit this year would be $1.2 trillion before the stimulus package. That’s more than twice the deficit in fiscal 2008, more than the entire GDP of all but a handful of countries, and more, in nominal dollars, than the entire United States national debt in 1982.

But while the sum is huge, it is not in and of itself threatening to the solvency of the Republic. At 8.3% of GDP, this year’s deficit is by far the largest since World War II. But the total debt is, as of now, still under 75% of GDP. It was almost 130% following World War II. (Japan’s national debt right now is not far from 180% of that nation’s GDP.)

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