Wall Street
rating agencies are starting to sound warnings again about the possibility of
further downgrades of the once-perfect U.S. credit rating as a critical year-end
deadline for addressing the nation's mounting debt nears.
Standard &
Poor's Corp. this week said that the outlook for the U.S. rating is negative and
suggested that it will downgrade the U.S. again if the political impasse over
tax and entitlement reform extends into next year. The agency shook world
markets last summer by downgrading the U.S. for the first time to AA+ from
AAA.
S&P cites
extreme politics as the biggest problem, and one that is getting worse as the
presidential race and fight for control of Congress heats up. The agency doesn't
expect the political environment to improve after the elections -- no matter who
wins. At that point, Congress will have only two months to avert a massive
fiscal train wreck from hitting the economy with huge tax increases and spending
cuts at year's end.
"Political
polarization has increased," with serious consequences for the nation's ability
to manage its growing debts, said S&P analyst Nikola G. Swann. She noted
that neither party has been able to muster broad bipartisan support for any
major measure to address the deficit and prevent the debt from eventually
getting out of control.
The agency noted
that President Obama and both parties in Congress spurned the recommendations of
a bipartisan presidential commission whose December 2010 plan could have brought
the deficit and debt down to manageable levels. Further, another bipartisan
panel appointed by the leaders of both parties last fall failed to draft an
alternative plan and broke up amid partisan finger-pointing.
hispanicbusiness.com
The move toward
extremes by both parties -- with Democrats refusing to consider major reforms in
fast-growing entitlement programs such as Social Security and Medicare, and
Republicans refusing to consider raising taxes or even closing tax loopholes to
reduce the deficit -- has made finding a middle ground increasingly difficult,
S&P said. hispanicbusiness.com As the political
impasse deepens, it raises questions about the government's willingness to
sustain its unprecedented $11 trillion mountain of public debt, S&P said,
while Congress' commitment to avoiding default is increasingly being tested by
politicking over legislative measures needed to increase the official debt
limit. hispanicbusiness.com S&P stressed
that most of the risks for U.S. debt holders are political, as the fundamental
economic and credit strength of the U.S. remains strong and it enjoys the
benefits of the dollar's reserve-currency status and a well-managed Federal
Reserve. hispanicbusiness.com Rating agency
Moody's is also preparing to cut ratings for 17 major banks with "global capital
markets operations." That includes
Wall Street firms Citigroup, JPMorgan Chase, Bank of America, Goldman Sachs and
Morgan Stanley. abc23.com The unexpected
surge in spending, which many economists attribute to layoffs during the
recession that pushed many baby boomers to apply for early retirement and
disability benefits, means the program from this point on will spend more than
it takes in payroll taxes, and will
fall into insolvency three years earlier, in 2033, Moody's noted.
hispanicbusiness.com Banks have been
trying to assure investors they're ready for any further rating downgrades ever
since Moody's first announced a review of the sector back in February.
abc23.com Fitch Ratings
reiterated on June 7 that it would cut America's AAA credit rating in 2013 if
the government can't come up with a "credible" deficit-reducing plan. First
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