Saturday, February 5, 2011

FinancialEdge: What Is The U.S. Government's Credit Score?

Although the U.S. government has the luxury that the market for its debt is the single largest securities market in the world, there is growing concern about the creditworthiness of the government and its ongoing ability to borrow. What would happen if the federal government were subjected to the same standards as its citizens and assigned a credit score? (For related reading, also take a look at Can You Hit A Perfect Credit Score?)

While the credit rating agencies jealously guard the formulas by which they calculate credit scores, a few general concepts are widely acknowledged as major factors. Let's look at how the United States would stack up for each element that goes into a credit score.

Are Bills Paid on Time? 
Paying on time is good, paying late is bad. Having a debt go to collection or discharging debts through bankruptcy is very bad.

Generally speaking, the United States has a very good record of paying its bills on time. The national government has defaulted on its debts just twice - back in 1790 (under the huge burden of debts incurred in the war for independence) and again in 1933 when the government explicitly changed the rules and unilaterally decided it did not have to honor the obligation to repay its debts in gold.

Along the way, the federal government has faced a few moments where creative accounting had to be employed. Nevertheless, for all of its faults and flaws, the United States scores well in terms of paying what it owes in interest and principal and doing so on time.



Please click here for the full column:
http://financialedge.investopedia.com/financial-edge/0211/What-Is-The-U.S.-Governments-Credit-Score.aspx

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