What a difference having a genuine national fiscal policy makes

The Economist’s Global Public Debt Clock 2011
Click on image to enlarge

Now before we all give into any international media-inspired hysteria and cry the sky is falling, here is Australia’s sovereign credit rating according to Standard and Poor’s (S&P) as of 5 August 2011:

Commonwealth of Australia

Sovereign local currency ratings (LT/Outlook/ST)  
AAA/Stable/A-1+

Sovereign foreign currency ratings (LT/Outlook/ST)
AAA/Stable/A-1+

Transfer and convertibility assessment  
AAA

The Commonwealth of Australia has retained an excellent Triple A credit rating from Standard and Poor's (as well as from Moody’s and Fitch) for the last eight years - for which successive federal governments of different political persuasions can take credit.

In 2011 its public debt as a percentage of its Gross Domestic Product (GDP) is running in the vicinity of 23 per cent, the current account deficit is around 2.5 per cent of GDP and total combined public, corporate and private individual foreign debt only resulted in a 3.9 per cent net income deficit as a percentage of GDP in the March 2011 Quarter - according to the figures I can find.


Just as importantly, one of the nation's major Asian trading partners China continues to see Australia as "stable" and gives a domestic currency credit rating of AAA and a foreign currency credit rating of AA+ at a time when Dangong Global Credit Rating has downgraded 
America's rating to "negative" and the official Xinhua news agency is stating; China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets.

Now compare that brief fiscal thumbnail with the recent credit rating history for the USA, courtesy of a Democrat Government incapable of dominating the Congress and a Republican Party which has lost its way.

Standard and Poor’s release on 18 April 2011:

We have affirmed our 'AAA/A-1+' sovereign credit ratings on the United States of America.

The economy of the U.S. is flexible and highly diversified, the country's effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.

Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.

We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.

Standard and Poor’s release on 5 August 2011:

We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

We have also removed both the short- and long-term ratings from CreditWatch negative.

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case….

We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.....

United States of America

Sovereign local currency ratings (LT/Outlook/ST)  
AA+/Negative/A-1+

Sovereign foreign currency ratings (LT/Outlook/ST)
AA+/Negative/A-1+

Transfer and convertibility assessment  

AAA


According to The Australian on 5 August 2011; Australian 3-year government bond prices posted their biggest one-day rise since 1991 as investors rushed en masse to the safety of risk-free assets.

In addition, The graph below shows historical exchange rates between the Australian Dollar (AUD) and the US Dollar (USD) between 7/7/2011 and 8/5/2011 as the international financial markets began to panic:

At 12pm (AEST) 6 August 2011 the Australian dollar was trading at 104.91 US cents....down from $US1.0665 late yesterday and off a 30-year high of $US1.1080 last week.  By 8 August the dollar was at 1.0343 US. 

On 5 August 2011 NASDAQ placed this recently high currency rate into perspective with this statement; the latest ascent comes about three months after the Australian dollar last hit a 30-year high. The initial push higher that started in June of 2010 came as a continuing mining boom and a series of interest rate hikes from Australia's central bank that began in October 2009 lifted the currency more than 30% against the U.S. dollar in a year.

According to the Herald-Sun the Australian stock market fell by 4 per cent on 5 August and at close of business yesterday the ASX All Ords and S&P/ASX200 graphs were not catastophic:

Placing that fall within an historical context is this ASX All Ordinaries (XAO) Index chart 1988 - 2011 graph:

Even the International Monetary Fund doesn't consider the Australian economy an overtly risky proposition. So the next time either the Opposition Shadow Treasurer Joe Hockey, unidentified Liberal/National sources or elements in the Murdoch press  attempt to slyly suggest that Australia's economy is inevitably on the way to the poor house without drastic regime change - yawn loudly and turn aside.

The only thing Australia has to fear at this point in time is the contagion of fear itself and perhaps being overly irritated by the silly political point scoring of conservative politicians and big business lobbyists alike.