Former Federal Reserve chairman Alan Greenspan says that Italy is the root of most of Europe’s economic problems, as well as our own.  In a recent appearance on “Meet the Press”, “It depends on Europe, not the United States,” Greenspan said. “The United States was actually doing relatively well, sluggish but going forward until Italy ran into trouble.”  According to Greenspan, 50 percent of American corporations have offices in Europe, and the continent “has been a very important driving force in the overall earnings of U.S. corporations.”  Greenspan also noted that S&P’s downgrade “hit a nerve”.  The ratings agency said it was reducing the AAA rating to AA+ not only because of the country’s debt load, but because it doesn’t believe that Congress can resolve the country’s debt problems.  Mark Zandi, chief economist at Moody’s Analytics, agrees, noting that “There’s a lot of fear and misunderstanding and confusion, and that all could come out in the stock and bond markets.  I don’t think it takes much to unnerve investors given the current environment.  I think anything could drive investors to sell given how fragile sentiment is.”

At the same time, Greenspan downplayed the risk of a double-dip recession in the United States, noting that the economy is in better shape than its European peers.  With all of this bickering going on, the economy is slowing down,” Greenspan said.  “You can see it in all the data.  I don’t see a double-dip, but I do see it slowing down.”  Europe, which purchases 25 percent of American exports and is home to the operations of many American companies, could determine the course of the U.S. economy’s recovery, according to Greenspan.  European leaders are working to control a sovereign-debt crisis, which has spread to Italy, the euro zone’s third-largest economy, and is causing chaos in global financial markets.

“When Italy first showed signs of weakness and started selling its bonds — the yield is now over six percent, which is an unsustainable level — it created a massive problem in Europe because Italy is a very large country, cannot be easily bailed out and indeed cannot be bailed out.  This is not an issue of credit rating. The United States can pay any debt it has because we can always print money to do that.  There is zero probability of default,” Greenspan said.

In the meantime, Fitch Ratings delivered some good news to the U.S. economy when it reaffirmed its AAA credit rating and said it did not anticipate downgrading the nation’s debt in the near future.  The firm said the outlook for the rating is stable because the recent deal to raise the debt ceiling and cut the budget deficit proved that the nation’s political leaders are willing to do what’s necessary to cut the nation’s growing debt.  The debt-ceiling deal “was a significant positive development that provided a substantive and necessary increase in the federal debt ceiling.  It also signaled that there is the political commitment to place U.S. public finances on a sustainable path consistent with the U.S. sovereign rating remaining ‘AAA’,” Fitch said.  Fitch’s outlook is the most positive on the U.S. of the primary credit rating agencies.  Standard & Poor’s downgraded long-term debt to AA+ after concluding that the planned $2.1 trillion to $2.4 trillion budget cuts over the next 10 years are not large enough to stabilize the nation’s rising debt.  Moody’s Investor Services also retained the nation’s AAA rating, but changed its outlook to negative.  This means that there’s a possibility of a downgrade.

“The key pillars of the U.S.’s exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base.  Monetary and exchange-rate flexibility further enhances the capacity of the economy to absorb and adjust to ‘shocks,’ Fitch said.

“I think they’re looking at a broader perspective than S&P in the global aspects,” Steve Goldman, Weeden & Company market strategist said of Fitch’s decision. “It’s giving a sigh of relief to investors here.”