S&P: U.S. Debt Outlook 'Negative'

Written by FrumForum News on Monday April 18, 2011

The Wall Street Journal reports:

Standard & Poor's Ratings Services Inc. cut its outlook on the U.S. to negative, increasing the likelihood of a potential downgrade from its triple-A rating, as the path from large budget deficits and rising government debt remains unclear.

"More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," S&P credit analyst Nikola G. Swann said. He said the rating agency puts the chance of a U.S. downgrade within two years at least one-in-three.

The move comes amid continued hand-wringing over the balance sheet of the world's largest economy and disagreement among politicians on how to address fiscal woes as economic growth remains tepid.

S&P said Monday it sees material risk that policymakers might not agree on how to address budgetary challenges by 2013, which would render the U.S. fiscal profile weaker than that of other triple-A-rated countries.

S&P said Monday the U.S.'s rating is supported by its flexible and highly diversified economy and a consistent global preference for the U.S. dollar, which gives it "unique external liquidity."

A senior Treasury Department official said that Standard & Poor's negative outlook underestimates the country's ability to face fiscal challenges.

"We believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation," said assistant secretary Mary Miller.

Ms. Miller said that it is well within the country's capacity to address its fiscal situation and noted that both Democrats and Republicans agree it is time to start reducing deficits as a share of gross domestic product.

S& P said that it doesn't take any position on the outstanding proposals from the White House and Congress to cut the deficit, but views proposals from President Barack Obama and House Republicans as a starting point.

In explaining its decision to put the U.S. credit rating on negative watchm S&P said the U.S. deficit "ballooned" to more than 11% of GDP in 2009 from a range of 2% to 5% from 2003 to 2008. It noted the gap between both Republicans and Democrats about how to cut the deficit "remains wide." Even if an agreement is found between both sides, "there is a reasonable chance that it would still take a number of years before the government reaches a fiscal position that stabilizes its debt burden," S&P said.

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