Business English Practice: Negative Outlook Placed by S&P on US Government Debt - first time ever!

Click on the linked picture above to go to a newsy.com video on the revision of the credit outlook on US government debt down to "negative", by the world's oldest and biggest credit rating agency, Standard & Poor's (S&P) - the first time ever! You can also find the written transcript together with the video at [http://www.newsy.com/videos/s-p-takes-first-plunge-declares-negative-debt-outlook/]

Thus there could be a risk that the US Government's AAA rating could be cut lower than that of other leading AAA rated nations such as Germany, Switzerland, the United Kingdom and Canada. [CLICK here for S&P's Ratings List for all the countries it rates.]

After the announcement, the Dow Jones Industrial stock market index which rose consecutively over the three previous trading days for a total 70 point gain, lost double that three day gain on just the one day of April 18, slumping by 140 points, or over 1%. Strangely, the effect was even greater in Europe, with London's FTSE index, the Frankfurt DAX index, and the Paris CAC 40 all experiencing very sharp drops of over 2%. (Greater perhaps because "sovereign" risk is even greater amongst Europe's PIGS - Portugal, Ireland, Greece and Spain. SEE the BBC article: Europe's PIGS: Country by Country.) The next trading morning, stock markets in Asia fell across the board, with Tokyo's Nikkei index, Seoul's KOSPI, the Shanghai Stock Exchange composite index, and Hong Kong's Hang Seng index all falling by over 1%.

Here is the sharp drop in the stock market on Apr 18 upon S&P's "negative outlook"
announcement on US government debt - from Google Finance.

What is the reason for S&P's negative outlook? The reason, according to S&P's own media release on the day, is

"because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us,"

 S&P goes on to explain:

"In 2003-2008, the U.S.'s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most 'AAA'rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover."

 According to OECD statistics, the US Government deficit as a percentage of GDP went from 2.9% in 2007 to 6.3% in 2008, and 11.3% in 2009 (and in 2011 is still expected to be at almost 9% of GDP). To see a comparison of the American deficit against some of her "peers", I have created here a list of deficit infamy among certain major economies:

List of Deficit Infamy (data source: OECD)

	Deficit as % of GDP
	2007	2008	2009
U.S.A.	2.9%	6.3%	11.3%
U.K.	2.8%	4.8%	11.0%
France	2.7%	3.3%	7.6%
Japan	2.4%	2.1%	7.1%
Canada	surplus	surplus	5.5%
Germany	surplus	surplus	3.0%
South Korea	surplus	surplus	0.0%

So, for the US, that is the biggest percentage in the biggest economy on the world. That's a lot of deficit! The US Government annual budget deficit for 2011 is expected to be an all time high of $USD 1.5 trillion (that is $1,500 billion; or $1,500,000,000,000). Clicking on this Google search will give you a good range of articles on America's new record deficit. That means that the U.S. Government will spend in 2011 around $USD 4,800 per citizen more than it will actually get in revenue for the year. Not only will the deficit be a record in absolute terms, you will see if you use the interactive chart here at usgovernmentspending.com, that, other than during the two World Wars last century, the US budget deficit as a percentage of GDP after the late 2008 Financial Crisis has never been higher.

Who knows for sure how this record deficit will play out ....?


Some notes on the language:

- Terminology here is important. You need to research your understanding of:

credit rating, interest rate.

It would also be good to have a clear understanding of these terms:

budget, deficit, surplus.

- "shot across the bow" - In the old dangerous days of sailing, with oceans filled with wars and pirates, it was essential that ships be able to identify each other before they got too close to each other. They mostly did this by flying flags on their mast. If there was a ship that could not be identified in this way, then the practice was to fire a "shot across the bow" of the other ship, so that they would be warned and notified to identify themselves. Thus this idiomatic expression came to mean a warning, a strong and stern warning. Did you notice its use in the video?

The caption to this picture from [http://truthandgrace.com/muslimslavery.htm] says "A steam pinnache of H.M.S. London puts a warning shot across the bow of a slaving dhow in 1881".

- haven - Use in the video: "America, once the safe haven of financial stability". First, some discussion of LINGUISTICS: Although you might think that "haven" comes from the word "heaven", the origin of the meaning of "haven" is somewhat different. To illustrate, the website dictionary.com lists the following for the origin of "heaven":

"Middle English heven, Old English heofon; cognate with Middle Low German heven; akin to Old Norse himinn, Gothic himins, German Himmel".

 And you will find that the English word "heaven" in the other modern Germanic languages are: German Himmel, Dutch hemel, Danish Himlen, Swedish himlen and Norwegian himmelen.

However, for the word "haven", dictionary.com lists for its origin:

"Old English hæfen; cognate with Dutch haven, German Hafen, Old Norse hǫfn; akin to Old English hæf, Old Norse haf sea".

 So the the meaning of "haven" is related to protection/refuge (from the sea - but now extended to other general situations), rather than the safety of a paradise in heaven. Just like "shot across the bow" above, "haven" is another term related to sailing! And in fact you will find that in all the modern Germanic languages, a sea harbor is: German Hafen, Dutch haven, Danish havn, Swedish hamn and Norwegian havn. Some other common related terms that you can research for Business English are: "tax haven" and "tax shelter".

The word "haven" - another term somehow related to sailing - comes from a word related to well protected/sheltered harbours and ports, rather than from the word "heaven". Thus in English speaking countries and in Northern Europe, "-haven", "-hafen" and "-havn" are common suffixes for names of places with harbours. This is a picture from Anderson Scandinavian Tours of Frederikshavn, a city in north Denmark where one of the functions of the city is to receive Oslo (Norway) ferries which come further from the north .

Practice your business English by watching and listening to the video above. For more detailed study, you can read the written transcript at the link given above.

[A rare opportunity for you to speak, practice, chat and learn English especially for business, finance, law, international economies & trade at the webpage for Mastery English.]