U.S. Downgrade Seen as Upgrade as U.S. Debt Dissolved

http://www.bloomberg.com/news/2012-10-09/u-s-downgrade-seen-as-upgrade-as-u-s-debt-dissolved.html

U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.

Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.

Reduced borrowing means there is less competition for the U.S. Treasury Department as it sells debt to fund spending programs to help the nation recover from the worst financial crisis since the Great Depression. Credit-rating firms are discounting the improvement even as debt, equity and currency markets suggest the U.S. is more creditworthy than before Standard & Poor’s stripped the nation of its AAA grade in 2011.

“Most people don’t pay much attention to ratings when it comes to Treasuries, as they are still considered to be risk- free assets,” Donald Ellenberger, who oversees about $10 billion as co-head of government and mortgage-backed securities at Federated Investors in Pittsburgh, said Oct. 5 in a telephone interview. “Until that perception changes Treasuries will continue to be” in demand, he said.