More national credit and debt drama stirred the nation this week. Fitch Ratings issued a warning yesterday to the effect that it would have to place the nation’s credit rating “under review”—effectively reducing the AAA rating—unless the debt ceiling is raised in short order.
The debt ceiling governs how much debt the nation can shoulder. This ceiling must be raised by the end of February for the nation to avoid a downgrade and worse.
Of course, it’s fully expected that we will see another round of dramatic standoffs between the President and Republicans.
The Houston Chronicle reports:
“The pressure on the U.S. 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 U.S. rating under review.”
If the credit rating does fall, the U.S. must pay a higher cost when trying to balance its debt in the future. Such a reduction in credit rating would follow Standard & Poor’s previous downgrade in the midst of the sheer chaos of the 2011 debate over debt.
Currently, the nation’s debt burden is near 100 percent of annual GDP—a fact that has already caused Fitch to provide a negative outlook for the country. Never mind the February deadline; this circumstance would make Fitch evaluate U.S. credit rating in any case sometime this year, regardless of how the debt ceiling drama plays out.
The third major ratings agency, Moody’s, has also provided a negative outlook.
Mr. Riley’s comments and Fitch’s general warnings highlight the illusory nature of the fiscal cliff deal. Although the last-minute deal that was slapped together does provide some short-term fixes, it doesn’t deal with various spending cuts and back measures.
Overall, the sheer number of such crises, and the fractious nature of the political movements they inspire, is unbecoming for a country holding an AAA rating.
Nevertheless, Mr. Riley did indicate that the resurgent U.S. economy—driven in no small part by the shale boom—as well as the luxury of worldwide benchmark status for the U.S. dollar and domestic bonds, mean that there is a good chance of pulling together the nation’s finances.
