Sunday, October 20, 2013

Will Government Ever Realize Their Shenanigans Only Hurt Credit Ratings

S&P: US Still Not Ready to Win Back AAA Rating

Friday, 18 Oct 2013 08:16 AM
By Michelle Smith
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If the United States wants to regain its AAA credit rating from Standard & Poor's, lawmakers have to stop dragging the nation to the brink of crisis.

S&P, like most of the nation, expected a last minute deal to raise the debt ceiling, and Washington came through. But its reckless governing style is not one that warrants the nation having a stellar credit rating, Marie Cavanaugh, S&P lead analyst on US sovereign ratings, explained to CNBC.

The United States' credit rating was downgraded in 2011, "predominantly because of the extreme brinksmanship one sees," she noted.



"There are many credit strengths in the United States," she continued. "But the constraints in our opinion are this brinkmanship which relates to the very unusual budgeting strategy where by the spending decisions and the funding decisions are separate. That's not the case for most governments."

Washington's political antics create self-inflicted wounds, often aggravating the nation's problems, but in the end there remain no long-term solutions. As with any entity, the United States' credit rating is based on more than a single factor, and Cavanaugh explained that the government's money management is also on S&P's radar.

The United States currently has a AA+ rating with a stable outlook, but the debt is still "fairly high," she said.

"It's actually stabilizing in our opinion over the next few years, but then we'll begin to edge upward without additional fiscal measures," Cavanaugh added.

At a hearing last month before the Joint Economic Committee, Moody's Chief Economist Mark Zandi, put forth a similar assessment.

"While the fiscal situation should be stable through the end of this decade, the long-term fiscal outlook remains disconcerting," he testified.

He said a grand bargain with comprehensive entitlement and tax reform is likely too much to ask for, but he urged that some meaningful action be taken.

"If Congress does not make significant changes to the entitlement programs and tax code, rising healthcare costs and an aging population will swamp the budget in the 2020s and 2030s" he warned.

Thursday, Chinese rating agency, Dagong, downgraded the U.S. credit rating from A to A- while maintaining a negative outlook on sovereign credit.

Dagong explained the issue of debt outpacing fiscal income and GDP has not been addressed, according to Reuters.

Therefore, the U.S. "government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future" the agency concluded.


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