Between the Democrats and Republicans' political standoff over the debt ceiling, the $14,300 billion worth of debt the United States owes, the weak recovery and the weak budget cuts, the Standard and Poor's (S&P's) ratings agency downgraded the United States' debt one notch to AA+ back in August 2011. This is the first time the rating has not been AAA since S&P's began rating the debt of the United States.
TUTORIAL: Credit Crisis
As the world recoils from this historical event, people should know the United States has not been alone in being downgraded from the crucial AAA rating. In the 1990s, Japan lost its AAA rating, and it was further downgraded again earlier this year (it is interesting to note interest rates for Japanese debt actually decreased since its downgrade). In 2009, S&P downgraded Ireland's AAA rating, and the latest Europe crisis countries, Italy and Spain, were rated AAA in the 1990s as well. With that said, there are only 18 countries remaining that have the AAA rating with a stable outlook, and that number is getting smaller and smaller. (For related reading, see How The Credit Rating Downgrade Affects the U.S. Economy.)
Singapore enjoys low inflation near 5%, a low unemployment rate around 2% and one of the highest GDP per capita rates in the world, currently at $49,321. Bolstered by its strategic location on major sea routes and investment in manufacturing and the financial industry, making up 26% and 22% of its economy respectively, Singapore's economy also hit a high growth rate at 39.90% in March 2010, even surpassing China and India. It has since settled at an average quarterly growth rate of about 6.36%, which is still commendable compared to the United States' anemic 1.3% for the second quarter. No wonder Singapore's debt is rated AAA, as this high-growth, low-unemployment and low-inflation country shows stability and the ability to pay its debts.
Norway has a mixed economy with an abundance of natural resources; this includes fishing, hydroelectric power and, more predominantly since the 1970s, petroleum. Taxes are high, but they provide a high standard of living in return. For their efforts, Norwegians enjoy a low unemployment rate of about 2.8%, inflation about 1.6% and a GDP per capita of $58,714. All of these factors combined with a low debt-to-GDP ratio of 44.7% makes Norway highly likely to pay back its debts.
The largest economy in the eurozone also happens to be rated AAA. It is the fifth largest economy in the world and boasts an inflation rate of about 2.5%, a low unemployment rate of about 6.6% and high GDP per capita of $35,374. Germany's economy is an industrial powerhouse, home to companies such as BMW, Volkswagen and Porsche.
Canada navigated the credit crisis better than most with its strict banking laws and regulations, avoiding subprime mortgages and requiring higher down payments on homes. Because of this, it is regarded as having one of the strongest banking systems in the world. With its abundance of natural resources, most notably oil, Canada has prospered with the recent volatility in oil prices. It enjoys a low inflation rate about 3.2%, low unemployment rate of about 7.1% and has a high GDP per capita of $39,078. It is interesting to note that Canada was downgraded in the 1990s, but has since regained its AAA status through budget cuts and fiscal discipline.
This small nation of 5.53 million people has very few natural resources. In fact, almost its entire economy is based on human resources, or the service sector. It has not adopted the euro, choosing to stay with its Danish krone so it has more flexibility with its currency. Additionally, its taxes are one of the highest in the world, with a value added tax of 25% placed on most goods and services and income tax sitting at 59%. However, it can say it has a low Debt to GDP ratio of 43.6%, an unemployment rate about 4%, inflation rate about 2.5% and a GDP per capita rate at $36,845. This stability and low debt makes it almost certain it will pay back its obligations. Not bad for a country that provides tax funded healthcare and unemployment insurance.
Other AAA Rated Countries
Others nations with AAA ratings are: Isle of Man, Liechtenstein and Guernsey.
The United States in comparison has a debt-to-GDP ratio of 93.2%.
The Bottom Line
Although the United States has been downgraded to AA+, there are a few more countries that still retain the status. It is also not the end of the world as countries such as Canada have regained their AAA status after being downgraded. One day the United States may once again join that prestigious list. (For related reading, see The S&P Downgrade: What Does It Mean?)