An esteemed bond fund manager has predicted a downgrade for the US, due to its large public debts run up in the recession.
The world's biggest economy might have its debt downgraded, in a move that would have big implications for the UK.
Bill Gross, manager of the world's biggest bond fund, said that the US was facing the loss of its top AAA rating on its sovereign debt - and could face severe obstacles to its future economic growth and a devaluing of its currency as a consequence. A ratings downgrade can make it harder for the government to service its debt by selling bonds - meaning that it must take drastic steps including raising taxes and slashing public spending to make ends meet instead.
As the US is by far the world's largest economy, such a downgrade would be likely to have severe knock-on effects for other nations. Meanwhile, the UK is itself facing the loss of its AAA rating, following ratings agency Standard & Poor's (S&P) decision yesterday to switch the nation's debt outlook to "negative".
Rapid increases to national debt burdens caused by the global credit crunch and economic downturn - which has severely limited tax revenues for national governments - is to blame for the threatened downgrades. Countries which have already lost their AAA debt ratings in the crisis include Spain and Ireland.
Mr Gross, manager of Pimco's Total Return fund, told Reuters: "[The US is] going the way of the UK - losing [the] AAA rating which affects all financial assets and the dollar."
He added that the downgrade would come in "at least three to four years, if that".
S&P said yesterday that the UK's net national debt is likely to reach 100 percent of GDP over the years to come.
