Ares
6th August 2011, 07:28 PM
One day after lowering the nation’s platinum triple-A credit rating, Standard & Poor’s analysts warned Saturday that the U.S. government could face a second downgrade if the economy continues to struggle and the government fails to make the cuts outlined in the debt ceiling agreement.
The ratings agency on Friday downgraded the nation to AA+ for the first time in history, saying partisanship in Washington is preventing dramatic deficit reduction.
S&P managing director John Chambers told reporters on a Saturday conference call that the toxic mix of a listless economy and political infighting will cause government debt to grow.
“Compared to some other highly rated governments, the U.S. government does not have the proactive ability to put public finances on a firm footing,” Chambers said.
His colleague David Beers said the partisan discord increases the risk that Washington will not achieve effective policy remedies.
“For that reason, there’s a lot of uncertainty about the future debt burden,” Beers said.
The White House on Saturday issued its first public comments on the fiscal developments, without directly citing either S&P or the downgrade.
“The president believes it is important that our elected leaders come together to strengthen our economy and put our nation on a stronger fiscal footing,” White House press secretary Jay Carney said in a statement. “The bipartisan compromise on deficit reduction was an important step in the right direction. Yet, the path to getting there took too long and was at times too divisive. We must do better to make clear our nation’s will, capacity and commitment to work together to tackle our major fiscal and economic challenges.”
The possibility of a second downgrade could increase the pressure on the White House and House Republicans to find common ground on deficit reduction and measures to stimulate the economy.
The deal on raising the debt ceiling — reached as the government was staring down a potential default — increased the nation’s borrowing authority in return for at least $2.1 trillion in deficit savings over the next decade. A congressional super committee is tasked with identifying at least $1.2 trillion of those savings in the coming months.
When S&P pulled the triple-A rating, it projected that net government debt would equal 85 percent of the U.S. Gross Domestic Product in 2021. That could rise to 101 percent by 2021 if the economy does not improve, Chambers said.
A debt ratio that high could knock the current U.S. rating of AA+ down to AA.
For the first half of this year, economic growth has trudged along at less than a percentage point. The meager growth suggests to some prominent economists, including former Treasury Secretary Lawrence Summers, that the nation may soon face a double-dip recession.
The S&P projections also assume that it would become more expensive for the U.S. government to borrow.
On Tuesday, Moody’s and Fitch credit agencies affirmed the government’s platinum rating, though both firms cautioned that a downgrade could occur if the next rounds in deficit cuts prove unsatisfactory.
http://www.politico.com/news/stories/0811/60803.html#ixzz1UJ396WyV
The ratings agency on Friday downgraded the nation to AA+ for the first time in history, saying partisanship in Washington is preventing dramatic deficit reduction.
S&P managing director John Chambers told reporters on a Saturday conference call that the toxic mix of a listless economy and political infighting will cause government debt to grow.
“Compared to some other highly rated governments, the U.S. government does not have the proactive ability to put public finances on a firm footing,” Chambers said.
His colleague David Beers said the partisan discord increases the risk that Washington will not achieve effective policy remedies.
“For that reason, there’s a lot of uncertainty about the future debt burden,” Beers said.
The White House on Saturday issued its first public comments on the fiscal developments, without directly citing either S&P or the downgrade.
“The president believes it is important that our elected leaders come together to strengthen our economy and put our nation on a stronger fiscal footing,” White House press secretary Jay Carney said in a statement. “The bipartisan compromise on deficit reduction was an important step in the right direction. Yet, the path to getting there took too long and was at times too divisive. We must do better to make clear our nation’s will, capacity and commitment to work together to tackle our major fiscal and economic challenges.”
The possibility of a second downgrade could increase the pressure on the White House and House Republicans to find common ground on deficit reduction and measures to stimulate the economy.
The deal on raising the debt ceiling — reached as the government was staring down a potential default — increased the nation’s borrowing authority in return for at least $2.1 trillion in deficit savings over the next decade. A congressional super committee is tasked with identifying at least $1.2 trillion of those savings in the coming months.
When S&P pulled the triple-A rating, it projected that net government debt would equal 85 percent of the U.S. Gross Domestic Product in 2021. That could rise to 101 percent by 2021 if the economy does not improve, Chambers said.
A debt ratio that high could knock the current U.S. rating of AA+ down to AA.
For the first half of this year, economic growth has trudged along at less than a percentage point. The meager growth suggests to some prominent economists, including former Treasury Secretary Lawrence Summers, that the nation may soon face a double-dip recession.
The S&P projections also assume that it would become more expensive for the U.S. government to borrow.
On Tuesday, Moody’s and Fitch credit agencies affirmed the government’s platinum rating, though both firms cautioned that a downgrade could occur if the next rounds in deficit cuts prove unsatisfactory.
http://www.politico.com/news/stories/0811/60803.html#ixzz1UJ396WyV