David Prosser: Do the credit rating agencies dare hold the US to account?

Outlook It wasn't all that long ago that the economic debate in the UK was paralysed by the fear that the credit ratings agencies were about to remove our cherished AAA rating. This was the nub of the row between Labour and the Conservatives during last year's election campaign: just how much deficit reduction was needed to save our credit rating and how quickly?

Well, the credit ratings agencies are back and this time they have a rather more significant target in mind than the world's eighth biggest economy – the No 1. Both Moody's and Standard & Poor's voiced their concern yesterday about the deterioration in the US's fiscal health – and warned that its AAA rating could be at risk. In the words of Carol Sirou, head of S&P France, "no triple-A rating is forever".

There are sound reasons for these warnings. While the UK, cowed by the threat to its rating, has rushed headlong into a tough deficit reduction programme, the US has taken the opposite approach — taking on further borrowing while it bets that tax cuts will stimulate economic growth and, eventually, bring the deficit back down.

But would the credit rating agencies really dare to strip the US of its blue-chip credit status? The results would be catastrophic. What would happen were investors suddenly to lose faith in the dollar as the world's reserve currency? Well, it would be a leap into the unknown, for sure, but one followed by a very rough landing.

The dollar is already weak by historical standards, but the loss of AAA status would be likely to prompt its collapse. And what about US Treasury bills, the world's most important debt instrument? They presumably would slump in value too, with knock-on effects in bond markets around the world, all of which use Treasuries as a benchmark.

Moody's and S&P are, of course, right in their assessment that US debt continues to rise – and it is a statement of the obvious that countries can only borrow so much without seeing their credit ratings suffer as a consequence. The ratings agencies are also painfully aware that having performed so hopelessly in the run-up to the financial crisis, they need to prove that they are worth their jobs.

Still, would they really have the nerve to plunge the world back into crisis by downgrading the US? Don't put your money on it.