The following is a Politico report:
One day after lowering the nation’s platinum triple-A credit rating, Standard & Poor’s analysts warned Saturday that the U.S. government could face a second downgrade if the economy continues to struggle and the government fails to make the cuts outlined in the debt ceiling agreement.
The ratings agency on Friday downgraded the nation to AA+ for the first time in history, saying partisanship in Washington is preventing dramatic deficit reduction.
S&P managing director John Chambers told reporters on a Saturday conference call that the toxic mix of a listless economy and political infighting will cause government debt to grow.
“Compared to some other highly rated governments, the U.S. government does not have the proactive ability to put public finances on a firm footing,” Chambers said.
His colleague David Beers said the partisan discord increases the risk that Washington will not achieve effective policy remedies.
“For that reason, there’s a lot of uncertainty about the future debt burden,” Beers said.
The White House on Saturday issued its first public comments on the fiscal developments, without directly citing either S&P or the downgrade.
“The president believes it is important that our elected leaders come together to strengthen our economy and put our nation on a stronger fiscal footing,” White House press secretary Jay Carney said in a statement. “The bipartisan compromise on deficit reduction was an important step in the right direction. Yet, the path to getting there took too long and was at times too divisive. We must do better to make clear our nation’s will, capacity and commitment to work together to tackle our major fiscal and economic challenges.”
The possibility of a second downgrade could increase the pressure on the White House and House Republicans to find common ground on deficit reduction and measures to stimulate the economy.
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2 Responses
1. If the reaction to the market is for investors to seek safety by buying Treasuries (USA bonds), which results in lower interest and higher prices for USA bonds, then the S&P looks like a fool.
2. Given that the Democrats view is the way to cut the deficit and stimulate the economy is to print more money and expand government services, and the Republic view is the currect approach is to cut taxes (especially on business) and reduce government services, there obviously won’t be any compromise until 2013.
The American economy is a slow motion train wreck. There is no short term solution or compromise that will fix anything. Only a major overhaul of the system will have any effect and that will not happen.
There is the very real possibility of a US default on debt and the collapse of the Dollar as the international reserve currency. When that is about to happen, all sorts of restrictions will be placed on the export of US funds out of America. This is what has happened to other countries whose currencies have collapsed.
“A wise man can anticipate what will happen.”
Now is the time, while it is still legal, to move your money out of the US and put it somewhere safe, like Israel. If you need help with this, I can refer you to experts in the field.
Aryeh Zelasko
Beit Shemesh