Fitch's "Reserve Currency" Loophole: 80-90% Debt/GDP Rule Does Not Apply To You

Tyler Durden's picture


It would appear that French-owned Fitch, following its rating-watch-negative shift on the US credit rating last week, has got a tap on the shoulder from the powers that be. As Hollande complains about Obama's espionage, Fitch has released a statement explaining how the USA can do whatever it wants and not be downgraded. With only the Chinese ratings agency "able" to openly comment on the creditworthiness of the USA, it is no surprise that Fitch gave itself an "out" on the basis of the USDollar's exorbitant previlege.


Via Fitch,

Fitch Ratings says in a new report that even for a sovereign with the strongest credit fundamentals, there will be a gross general government debt (GGGD)/GDP level above which Fitch believes its rating is no longer compatible with 'AAA'.


This is usually 80%-90%, but can be higher for sovereigns with exceptional financing flexibility, such as benchmark borrowers with reserve currency status. As we have highlighted before, for France, Germany and the UK, this threshold is currently 90%-100%, and for the US, it is currently 110%, provided debt is then placed on a firm downward path over the medium term.


Our 80%-90% threshold recognises that sovereigns with (otherwise) 'AAA' characteristics have high financing flexibility and debt tolerance. Nevertheless, such a high level of debt tends to persist and potentially limits the capacity to respond to future shocks. It can also have a negative impact on growth.


Fitch gives a 'AAA' rated sovereign some leeway in allowing a temporary rise in its GGGD/GDP ratio before a downgrade. This stickiness also works in the other direction. The ratio needs to be steadily declining before restoring 'AAA' status, if warranted by other credit factors. Debt dynamics would need to be resilient to shocks to ensure that the 80%-90% level is not breached again. This would imply a fall in the debt ratio (not just a projected fall) of around 10pp of GDP or more from the downgrade level and would likely take several years.


A larger fall in the debt ratio would likely be required to restore the 'AAA' if the associated shock that precipitated the sharp increase in the debt ratio and downgrade revealed or triggered other negative credit developments such as weakening in the fiscal policy framework or credibility, a worsening in the structure of government debt, deterioration in economic growth prospects or a weakening in political stability or governance.


The 2013 median GGGD/GDP ratio for 'AAA' rated sovereigns is 47%, compared with 42% for all Fitch-rated sovereigns. But other credit strengths are sufficient to outweigh the potential drag on the rating from public debt. They typically have debt denominated in their own currency and can issue at long maturity while low interest rates hold down service costs.


The trajectory of GGGD/GDP may, at a particular time, be the key driver of rating actions for 'AAA' or 'AA+' rated sovereigns. However, ratings reflect the strengths and weaknesses of many factors, not just public debt. Thus rating actions can bite at various GGGD/GDP ratios.

So there it is folks... because of the dollar's exorbitant privelege position of world reserve currency, Reinhart and Rogoff's 90% barrier is irrelevant... It seems that Fitch is measuring pure default risk and not a "default and recovery" measure...

Simply put, there ain't no stopping US now...


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Tue, 10/22/2013 - 15:33 | 4080442 FieldingMellish
FieldingMellish's picture

so when the $ is no longer the only game in town...?

Tue, 10/22/2013 - 15:41 | 4080476 Jannn
Jannn's picture

1974 Meeting European Ministers Of Finance On Gold

Tue, 10/22/2013 - 15:47 | 4080487 Stoploss
Stoploss's picture

How much debt does France buy??

Who gives a shit what fitch says, they don't buy the fucking debt, CHINA DOES.

I think it matters more what China thinks than what Fitch thinks.

So, how's everything going over there in France?? I hear people can't get out of there fast enough.

Here's an idea for Fitch:   Worry about yourselves..

Tue, 10/22/2013 - 15:54 | 4080506 hedgeless_horseman
hedgeless_horseman's picture



Here is an excerpt of next quarter's red-line of this same Fitch report.

...this threshold is currently 90%-100%, and for
the US, it is currently 110% 125%, provided debt is then placed on a firm
downward path over the medium term.

Tue, 10/22/2013 - 15:55 | 4080510 SafelyGraze
SafelyGraze's picture

"Fitch gave itself an "out" on the basis of the USDollar's exorbitant previlege"

1. the USD's XP

and plus also,

2. the USD's FFC of the UST

and please to remember,

3. the BBL's from S'Udi A

and even still moreover there is

4. the Oz of Au priced in USD has been steady at $42 for decades

carry on, Fitchez!

Wed, 10/23/2013 - 09:26 | 4082412 N2OJoe
N2OJoe's picture

Who gives a shit what fitch says, they don't buy the fucking debt, CHINA DOES.

China doesn't buy our debt either anymore, the FED does!

Tue, 10/22/2013 - 15:49 | 4080489 Stackers
Stackers's picture

Economist code speak: "they have high financing flexibility"

Plain English: "they can print money"

Tue, 10/22/2013 - 15:55 | 4080513 B-rock
B-rock's picture

Bitch all you want Tylers, but they have this thing sewn up tight.  

Tue, 10/22/2013 - 15:33 | 4080444 Winston Churchill
Winston Churchill's picture

Oh my balls, said uncle warren.

Tue, 10/22/2013 - 15:34 | 4080446 jubber
jubber's picture

really how the Fuck can a country with over $17 Trillion in debt possibly AAA, it's all just total bollox

Tue, 10/22/2013 - 15:37 | 4080459 CPL
CPL's picture

100 Trillion

17 Trillion is just the federal gov't.

Tue, 10/22/2013 - 16:05 | 4080564 lasvegaspersona
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17 trillion is the tiny part of the present value of all promises made by the USG (net of the present value of expected revenues) that are held by those who own treasuries. The rest of the almost 200 trillion is hidden from view so as not to scare horses and small children.

I'm not sure where Fannie and Freddie fit in but I think the $200T covers them too.

Tue, 10/22/2013 - 16:53 | 4080769 yogibear
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It's well known the US cannot pay all of it's obligations. 

Tue, 10/22/2013 - 19:27 | 4081223 prains
prains's picture

but there will be no shortage in their ability to perpetuate WOARonzi !

Tue, 10/22/2013 - 16:03 | 4080555 B-rock
B-rock's picture

Jubber!  The whole thing is fucking joke.. that's how.  Don't look for sense.

Tue, 10/22/2013 - 16:34 | 4080690 Honey Badger
Honey Badger's picture

I suspect that a big military, and the history of using it freely, also gives a country some leeway with its debt/gdp. 

Tue, 10/22/2013 - 16:45 | 4080735 astoriajoe
astoriajoe's picture

all your income is belong to us.

Tue, 10/22/2013 - 15:34 | 4080449 Sufiy
Sufiy's picture

And here is why:

Karen Hudes: US Dollar and Gold - We Are Losing Our Credit Rating. 

 Karen Hudes is a former lawyer at the World Bank and a whistleblower. She continues her exposure of the fraudulent central bank system with FIAT currencies issued by the private banks like FED and based on debt. US is losing its credit rating now and it is the game changer. She called it a "grand scam and the Ponzi scheme" and among participants all the same well known faces: FED, BIS and other Central and Investment banks.    Today's action in Gold is showing that you can not manipulate the Gold market all the time and that we are very close to the breaking point in the status quo. At least Gold is confirming its breakout from the downtrend line today.

Tue, 10/22/2013 - 15:38 | 4080463 Bay of Pigs
Bay of Pigs's picture

Not sure is she is legit or a crazy woman.

She also says there are 170,000 TONS of gold stored in Hawaii. WTF?

Tue, 10/22/2013 - 15:39 | 4080470 fonzannoon
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well she is obviously wrong about the U.S losing it's credit rating...

Tue, 10/22/2013 - 15:45 | 4080483 Grande Tetons
Grande Tetons's picture

I saw her being interviewed...she is about as stable as Dean Martin juggling empty martini glasses. 

Tue, 10/22/2013 - 15:47 | 4080485 fonzannoon
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lol well she seems to get a lot of play on here in the comments section. I don't know why.

Tue, 10/22/2013 - 15:50 | 4080493 Grande Tetons
Grande Tetons's picture

Searching for vindication leads to that sort of behaviour.  I like PMs as you know...but it is not because of nutcases like her.  

Tue, 10/22/2013 - 16:09 | 4080575 Winston Churchill
Winston Churchill's picture

I don't know what its called nowadays.

She is a medicated paranoid schizophrenic.Without her meds

she would be arguing with herself.

She would have been suicided if there  was  any truth to her delusions.

Sad, because she is/was obviously bright , but her ravings discredit the

real truth tellers.

Tue, 10/22/2013 - 16:14 | 4080595 Grande Tetons
Grande Tetons's picture

Exactly,  a little more Meredith Whitney and a little less Edith Bunker would help the cause. 

Tue, 10/22/2013 - 15:52 | 4080499 Sufiy
Sufiy's picture

Few things are sound crazy, but a lot of other revelations are well known - somebody is pushing her and her information out now...

Tue, 10/22/2013 - 15:44 | 4080484 Jaspergers
Jaspergers's picture

yes but this is yamashita gold, not us gold... at least that's the story.

Tue, 10/22/2013 - 15:49 | 4080491 Bay of Pigs
Bay of Pigs's picture

Yes, I know that. But 170K tons of gold? Its fucking ridiculous.

Tue, 10/22/2013 - 16:10 | 4080581 lasvegaspersona
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How likely is it that 170,000 tons of gold were mined with low tech miners when the best we can do with modern equipment and techniques id 2500 tons a year. 

The book that figure came from (not Hudes but the orignial Black Gold story) has been discredited enough for me to ignore it (and those who claim there are huge hoards of uncounted gold). 

Tue, 10/22/2013 - 15:36 | 4080454 Bay of Pigs
Bay of Pigs's picture

KING Doelarr!


Tue, 10/22/2013 - 15:36 | 4080458 gjp
gjp's picture

Does anyone pay attention to rating agencies now?  Just another parasitic organization uselessly justifying its existence with sycophantic noise.

Tue, 10/22/2013 - 15:37 | 4080464 fonzannoon
fonzannoon's picture

The whole world is in on this ponzi. 

Tue, 10/22/2013 - 15:40 | 4080469 Grande Tetons
Grande Tetons's picture

Seems there are a lot of taps on the shoulder and other bullshit going on lately. 


Not sure if it is true or if it has been fixed but here is a link from a famous Gold bull site from today.



Tue, 10/22/2013 - 15:52 | 4080498 Bay of Pigs
Bay of Pigs's picture

I posted it last night on FarceBerg, and it's still there. Got two whole responses so far, lol.

Tue, 10/22/2013 - 15:55 | 4080514 Grande Tetons
Grande Tetons's picture

There you go. It was probably a glitch. Maloney is one of the more rational gold pumpers that is why I decided to post. 

Tue, 10/22/2013 - 15:48 | 4080486 adr
adr's picture

If I take a shit in a glass and try to serve it as chocolate pudding at a normal restuarant, I'd probably go to jail.

If I take a shit in a crystal goblet, and serve it as fine french chocolate mousse at a $250 per plate Manhattan restaurant, how many hedge funders would eat the whole thing and proclaim it the best dessert they ever had?


I'd call the dessert, The Credit Rating.

Tue, 10/22/2013 - 15:52 | 4080500 Grande Tetons
Grande Tetons's picture


Tue, 10/22/2013 - 16:21 | 4080625 RaceToTheBottom
RaceToTheBottom's picture

And if you make a coffee out of the shit, you get to sell all over the world.

Tue, 10/22/2013 - 15:56 | 4080521 Dre4dwolf
Dre4dwolf's picture

USA is like a parasite on china.

The elite in China are like a parasite on USA.



Nothing is going to change for a while.


The only way out for China is if CHINA becomes the new world reserve currency.

Which lets face it.... NO ONE will accept because of their massive rate of inflation.


If we don't go on a gold - standard, the only country that will have a reserve status is the country that prints the least relative to all the others, but stability is KEY, they don't care if you print out the ass, they care if you are strong enough to back it with military might.


Reserve Status is pretty much the badge that says " your strong enough to steal all the oil, so we aren't going to fuck with you" 

Its a form of appeasment, all the other nations are paying tribute to the Federal Reserve and its privately owned U.S. Govt Military.

No one is going to fuck with the fed because the fed will just send in the marines.


The u.s. and federal reserve are pretty much Nazi Germany, they are monetarily pillaging the planet with a FIAT MONEY BLITZ and the rest of the world is playing the appeasment game because they are afraid of the military might under the control of the central bankers in the U.S.



Tue, 10/22/2013 - 15:58 | 4080532 Atomizer
Atomizer's picture

Well, well, well. Fitch is withering tears. During the subprime housing bubble, remind everyone on your lapse of judgment in pencil whipping a warm body to purchase a house he/she couldn’t afford thru your AAA credit rating endorsements.


Get back with us Fitch.. :P

Tue, 10/22/2013 - 15:58 | 4080534 U4 eee aaa
U4 eee aaa's picture

Told ya 'Merica was exceptional!

Tue, 10/22/2013 - 16:01 | 4080545 ziggy59
ziggy59's picture

Obama, Jedi knight in training, to didnt downgrade the US..

Tue, 10/22/2013 - 16:12 | 4080589 DrData02
DrData02's picture

So.... No matter what the US does it won't get called out.  Hmmmm. Maybe they should shut the gubmint down again after the first of the year.  No adverse consequences.  Possibly get the sucker under control. 

Tue, 10/22/2013 - 16:24 | 4080615 Kirk2NCC1701
Kirk2NCC1701's picture

Fitch clearly writes its policies in Bois de Boulogne*, where they are known to hang out with their Fed buddies on occasion.

So what rating does the US get from "Les Dames du Bois de Boulogne"?  How many fingers or "Heads way up..." do they get?  ;-)


* A famous Parisian park that is frequented by Parisians and Tourists by day, and... Hookers, Johns, Drug Dealers and Junkies at night.

Tue, 10/22/2013 - 16:19 | 4080618 RaceToTheBottom
RaceToTheBottom's picture

Sort of what you expect when you let the rocket scientists take the microphone. 

Fitch is running scared:

One the one hand, they want to appear analytical

On the other hand, they want to make sure the US likes their answer.

Tue, 10/22/2013 - 16:26 | 4080651 Quinvarius
Quinvarius's picture

Permanently high plateau announced.  Everyone can relax now.

Tue, 10/22/2013 - 16:43 | 4080723 BullyBearish
BullyBearish's picture

The hopium creates dopium allowing the sheeple to gropium an antelopium to blaze up the slopium.  When the crash happens...they'll be looking for a ropium.


Tue, 10/22/2013 - 16:49 | 4080753 yogibear
yogibear's picture

Obama's goon, Eric Holder, is paying the rating agencies a visit. 

Their  bringing with them a pipe as a reminder of what being beaten feels like.

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