I Refuse to Use Fitch as a Pun in this Title

Fitch put the US government's credit rating on notice, to which the collective response from just about everybody was: "meh." As far as these things go, ratings agencies really don't have any information that the rest of us don't have. Furthermore, Fitch stressed that this was not an economic problem or a problem with the government's finances, but was a political problem. Fitch's full statement can be read here.

One part of Fitch's outlook, though, did jump out at me (the bold is mine):

Fitch's medium-term fiscal projections imply federal and general government (which includes states and local governments) gross debt stabilising next year and over the remainder of the decade at around 72% and 104% of GDP, respectively. This is below the 80% and 110% thresholds that Fitch previously identified as being inconsistent with the U.S. retaining its 'AAA' status.

Not only does Fitch have a threshold for government debt, they have a threshold that is 10 percentage points less than the much maligned Rogoff-Reinhart tipping point. I don't have access to Fitch's rationale for this, and would be very curious to see why they picked 80%. I did a cursory search on the 80% threshold and could only find mention of a correlation between 80% debt-to-GDP and debt crises. And I don't think I'm alone in being completely flummoxed on the use of this number. When European Commissioner Olli Rehn cited 80% as a debt threshold, Brad Delong could not find any reason for why that number was used.

It's a bit disconcerting that ratings agencies are using numbers that were seemingly pulled out of thin air. Even if Fitch used the now-debunked 90% threshold, at least the rationale would have been clear.