First, the rating agencies’ AAA ratings on U.S. debt are farcical. Remember, these are the same agencies that facilitated the real estate bubble and bust by giving their seal of approval to debt instruments cobbled together from no-doc and sub-prime mortgage loans — debt instruments that are now characterized as “toxic.”
But put aside their recent contribution to the housing debacle. The major credit rating agencies for decades have anointed U.S. government securities with their top ratings — treating U.S. bonds as the gold standard by which all other debt instruments should be measured — even when they knew that Washington was engaged in a colossal Ponzi-type cycle. It was able to repay its existing debt only by taking on greater debt, and then could pay off that newer debt only by taking on still more debt. And so on.
Could any careful lender conclude that such behavior by a borrower warrants the highest possible credit rating?
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