already taken steps to begin to run their fiscal stimulus. So, again, we expect basi- cally a scenario as with the other ‘AAA’ sovereigns that we’ve been talking about. Our basic answer to that scenario is we expect their debt burden to begin to decline, again, in contrast to the U.S. where we expect the debt burden to con- tinue to grow.

Of course, there’s Canada to the north of the U.S. Thanks to a sustained pro- gram of fiscal consolidation in the 1990s, the debt burden in Canada is very low, comparatively, at around 30% of GDP or so. Their recently elected majority government has been visibly rolling back the mild fiscal stimulus which they had and is aiming to get their budget back in balance. We think that they’re likely to succeed in that objective. So the debt burden is low, and we think it’s on a declining trend.

Schachne: Moving to some of the other sovereigns we rate in emerging markets, do we think that this downgrade action will have any effect on the emerging markets?

Chambers: I don’t think it’s going to have a direct knock-on effect. Remember, this downgrade is going from ‘AAA’ to ‘AA+’. We have about 20 ratings between ‘AAA’ and ‘D’ (for default). So, going from your highest rating to your next-highest rating—symbolically it’s important, of course—but it’s like going from indigo to navy blue.

As far as knock-on effects for the emerging markets, many of these mar- kets—because of fundamental reforms that they took on early in the decade— have kept their fiscal house in order. Their external position, for a variety of reasons, is much stronger now than it used to be.

Many of them are benefitting from favorable terms of trade, which is not a ratings factor because that changes over time. But many of them are in better shape. You’d have to go through one by one, though, to have a nuanced appraisal.

Beers: One other point to underscore, coming back to a comment I made ear- lier, is that there are a number of key factors that we have to look at for all of

our sovereigns with emerging markets and more advanced ones going forward.

I’ve highlighted this kind of tricky patch we’re experiencing in terms of the global growth outlook. We’re in the highly unusual position where there are a lot of questions about the growth out- look of the U.S., as well as a lot of ques- tions about the growth outlook in the European Union. And while Japan is beginning to bounce back nicely from the nuclear disaster that they had earlier this year, they still have a slowing trend growing rate in terms of GDP. So this is a large chunk of the global economy.

Emerging markets—most notably China—have been filling much of that demand, which is not coming from the events, countries, and regions I talked about before. But the economic prospects of many emerging market sovereigns are still very dependent on global trade pat- terns. So the future growth trajectory of China and the prospects for some of the advanced economies are very important in terms of how they’re going to fare over the next couple of years.

So all this is in the mix. And all this has to be looked at individually as well as the policy responses of these govern- ments to any of the headwinds that they faced in terms of how they interact with the global economy.

Schachne: There’s a question about the concept of forced selling. So, now that the U.S. has been downgraded from ‘AAA’, do we believe that this will force investors to sell Treasuries or other securities?

Chambers: When we talk to investors— and David and I speak to lots and lots of investors—we ask them this question. What most of them say is if there are guidelines regarding that, there won’t be any selling before there’s a discussion with the individual investor. And they think that there will be very little forced selling today.

Schachne: David, you spoke earlier about the ripple effect on munis and agencies. Is there a sovereign ceiling that pertains to corporate ratings in the U.S.?

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