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US Must Cut Deficit To Save AAA Rating

From the UK’s Telegraph:

US must cut spending to save AAA rating, warns Fitch

Fitch Ratings has issued the starkest warning to date that the US will lose its AAA credit rating unless acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders.

By Ambrose Evans-Pritchard
12 Jan 2010

Brian Coulton, the agency’s head of sovereign ratings, said the US is shielded for now by its pivotal role in global finance and the dollar’s status as the key reserve currency, but the picture is deteriorating fast enough to ring alarm bells.

"Difficult decisions will have to be made regarding spending and tax to underpin market confidence in the long-run sustainability of public finances. In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will approach levels by the latter half of the decade that will bring pressure to bear on the US’s ‘AAA’ status", he said.

Fitch expects the combined state and federal debt to reach 94pc [%] of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt. Most fiscal experts view this level as dangerously close to the point of no return for debt dynamics.

The rating alert is a reminder that fiscal stimulus and bank rescues across the world have merely shifted private debt on to public shoulders. The bail-outs looked deceptively ‘costless’ at the time, but the damage to sovereign states may take years to repair. The US Treasury says interest payments as a share of GDP will rise to 3.6pc by 2016, the highest since data began in 1940 – when it was 0.8pc

While US debt was higher after World War Two, circumstances were very different. The age structure was healthier. Most bonds were held by Americans. Demobilisation of the troops allowed for drastic budget cuts. America had emerged as the world’s strategic and economic Colossus. This time the US cannot rely on exuberant growth to whittle down the debt.

Once again, this is the kind of news article we never see stateside.

Though, as we have said, once Mr. Obama rams through his budget busting ‘healthcare reform,’ all we will hear about is how we have to raise taxes to bring down the deficit.

And all of his subsequent initiatives, from amnesty for illegal aliens to ‘cap and trade,’ will be sold as helping to bring about his promised ‘New Era Of Fiscal Responsibility.’

For the record, Fitch Ratings is an international credit rating agency dual-headquartered in New York City and London.

It was one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody’s and Standard & Poor’s.

This article was posted by Steve on Tuesday, January 12th, 2010. Comments are currently closed.

3 Responses to “US Must Cut Deficit To Save AAA Rating”

  1. proreason says:

    Here’s an easy prediction.

    Fitch Ratings is going to be called into the White House for a dialogue with our famously intellectual president who will listen respectfully to what they have to say before making his “decision”.

    Doesn’t matter that they aren’t a US owned business. If the executives of that country want to continue living in luxury or even to continue living, they will discover that downgrading Obamyland’s credit rating isn’t a good idea.

  2. Confucius says:

    Don’t trust Fitch, S&P or Moody’s. They all missed the tech and housing bubbles. In fact, they likely helped create the current housing and financial crises.

    From Bloomberg.com:

    Moody’s, S&P, Fitch Face Securities Ratings Hearings

    By Dakin Campbell

    Sept. 24 (Bloomberg) — Moody’s Investors Service, Standard & Poor’s and Fitch Ratings face scrutiny today by insurance regulators examining the role of the firms in evaluating fixed- income securities. …

    The three companies have been criticized by investors and lawmakers including Senate Banking Committee Chairman Christopher Dodd, who said they wrongly assigned top credit rankings to U.S. subprime-mortgage bonds just before that market collapsed in 2007. Subprime mortgages helped spark a housing- price collapse that contributed to a worldwide financial crisis. …

    The ratings companies haven’t resolved conflicts of interest and a lack of independence that contributed to the financial crisis and may cause more turmoil, according to Kolchinsky, the former Moody’s analyhst.[sic]

    “Senior management still favors revenue generation over ratings quality and is willing to dismiss or silence those employees who disagree with these unwritten policies,” Kolchinsky said in prepared testimony.

    Kolchinsky said he worked at Moody’s before being suspended for speaking up about alleged securities-law violations at the company. His testimony was to join that of White; Floyd Abrams, an attorney at Cahill Gordon & Reindel LLP; and Joseph Dear, chief investment officer for the California Public Employees’ Retirement System.


  3. Liberals Demise says:

    “If you won’t take plastic, will you take an I.O.U.?”

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