US faces another credit downgrade
Wed, 16 Jan 2013 8:42a.m.
By Pan Pylas
The United States could lose its top credit rating for the second time from a leading agency if there's a delay in raising the country's debt ceiling, Fitch Ratings has warned.
Congress has to increase the country's debt limit, which effectively rules how much debt the US can have, by the end of February or face a potential default, Fitch says.
There are fears that the debate will descend into the sort of squabbling and political brinkmanship that marked the last effort to raise the ceiling in the summer of 2011. Outgoing US Treasury Secretary Timothy Geithner warned then that it had nearly reached a point where government would be unable "to meet our commitments securely."
"The pressure on the US rating, if anything, is increasing," David Riley, managing director of Fitch Ratings' global sovereigns division said at a London conference. "We thought the 2011 crisis was a one-off event .... if we have a repeat we will place the US rating under review."
If that happens, Riley said there was "a material risk" of the rating coming down, which could mean the US would face steeper costs when it comes to servicing its debt.
If Fitch does move to downgrade the US, it will join Standard & Poor's, which was so concerned by the dysfunctional nature of the 2011 debate that it stripped the US of its triple A rating for the first time in the country's history.
Fitch already has a negative outlook on the US as the country's debt burden has risen to around 100 percent of its annual gross domestic product, and has said it will make a decision on the rating this year, regardless of how the debt ceiling discussions pan out.
The US government reached its statutory debt limit of nearly US$16.4 trillion at the end of 2012 but is pursuing some extraordinary measures and can use some in-house deposits that should see it through to the end of February, according to Fitch.
Another major ratings agency, Moody's, also has a negative view on the US outlook.
Riley's comments come just two weeks after US lawmakers agreed to a budget deal with the White House that avoided the so-called fiscal cliff of automatic tax increases and spending cuts that many economists thought could plunge the US economy, the world's largest, back into recession. Relief that a deal was cobbled together, albeit at the final hour, is one of the reasons why sentiment in the financial markets has been buoyant in the first trading days of the new year. Many stock indexes around the world are trading at multi-year highs.
"The `fiscal cliff' bullet was dodged .... (but it's) a short-term patch," said Riley.
Riley warned that the different arms of the US government still have a number of issues to address. As well as increasing the debt ceiling, they have to agree to spending cuts that were delayed as part of the "fiscal cliff" agreement and back measures to avoid a government shutdown, potentially in March.
Though short-term fixes are more likely than not, Riley said the US political environment is not as good as it should be for a country holding the gold-chip AAA rating. The past few years, Riley said, have been marked by "self-inflicted crises" between deadlines.
Overall, Fitch reckons the debt ceiling is "an ineffective and potentially dangerous mechanism for enforcing fiscal discipline."
The major reason behind the lack of swift action in the US is that the Democrats control the White House and the Senate, while the Republicans have a solid majority in the House of Representatives. Both sides have differing visions of the role of the state in society and often varying political objectives.
Despite his cautious tone on the rating, Riley said the US has a number of huge advantages and that getting the country's public finances into shape will not require the same level of austerity that many countries in Europe have had to enact over the past few years, partly because the US economy is growing at a steady rate.
Other factors Fitch says support the US's AAA rating are the country's economic dynamism, lower financial sector risks, the rule of law as well as the global benchmark status of the country's bonds and the dollar.
However it says these "fundamental credit strengths are being eroded by the large, albeit steadily declining, structural budget deficit and high and rising public debt."
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18/01/2013 11:56:20 a.m.
Great Robbery wrote:
Greatest robbery in the history of the world committed by the Banks, Jesus was right!.
16/01/2013 10:26:16 a.m.
Ewiak Ryszard wrote:
I'm not surprised. Where are we going?
An ancient vision says: "And [the king of the north] will go back (to) his land with great wealth ; and his heart (will be) against the holy covenant [state atheism]; and will act [it means activity in the international arena]; and turned back to his own land [1991-1993. The collapse of the Soviet Union and the Warsaw Pact. Russian troops returned to their country]. At the appointed time [he] will return back." (Daniel 11:28, 29a, literal translation) The return of Russia in this context means crisis, which will eclipse the Great Depression. Not only the eurozone will break up, but also the European Union and NATO. Then many countries of the former Eastern block will return to Russia's zone of influence. Russian troops will be stationed here again.
All the details of this vision are being fulfilled from the time of ancient Persia, in chronological order. It is true that this vision is variously interpreted. As one can see, it has a lot of details. Therefore the insightful person is able to detect any error or sophistry. (Daniel 12:10)
In 1882 British troops occupied Egypt. Great Britain then took the role of "the king of the south". Around the same time, Russia expanded its influence in the region, which previously belonged to Seleucus I Nicator, and took the role of "the king of the north". (Daniel 11:27)
16/01/2013 10:14:53 a.m.
I doubt caving in and making the bush tax cuts permanent helped their debt at all, given what temporary things the democrats got in return, the damn tax cuts never even created any jobs as promised under bush.
Obama the weakest democrat president ever, thats assuming hes even working for Americans not these big wigs who fund his party.
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