Thomson Reuters Foundation

Inform - Connect - Empower

TEXT - S&P says impasse on fiscal cliff doesn't affect U.S. sovereign rtg

Source: Thomson Reuters Foundation - Fri, 28 Dec 2012 20:28 GMT
Author: Reuters
cor-gov
Tweet Recommend Google + LinkedIn Email Print
Leave us a comment

Dec 28 - Standard & Poor's Ratings Services does not expect negotiations over the fiscal cliff to have an impact on its 'AA+/A-1+' ratings on the U.S. federal government. On Aug. 5, 2011, Standard & Poor's lowered its rating on the U.S. to this current level from 'AAA', citing among other factors "the political brinkmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable". We believe that this characterization still holds. If lawmakers reach no agreement, the Congressional Budget Office estimates that the government will receive additional revenue and will forgo additional expenses of upwards of ${esc.dollar}500 billion (3% of 2013 GDP) a year. Such a sharp, unplanned fiscal correction, however, would likely result in the U.S. economy contracting by half a percent in 2013 and unemployment rising a percent to 9% by 2014 (see "We Can Work It Out," published Dec. 21, 2012). Moreover, we would view fiscal consolidation enacted by default and centered on short-term measures--as opposed to enacted by bipartisan agreement and centered on long-term drivers of fiscal deficits--to be vulnerable to reversal, especially in the first few weeks of the new year. If lawmakers reach an agreement this weekend, we believe it will likely be consistent with our previous assumptions that the tax cuts of 2001 and 2003 are extended for some period and additional measures are insufficient to place the U.S. medium-term public finances on a sustainable footing. Our existing negative outlook on the U.S. rating speaks to the risk of a deliberate further loosening of fiscal policy, for example through a material weakening of the Budget Control Act of 2011 without compensating measures.

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of the Thomson Reuters Foundation. For more information see our Acceptable Use Policy.

comments powered by Disqus
Most Popular
TOPICAL CONTENT
Topical content
LATEST SLIDESHOW

Latest slideshow

See allSee all
FEATURED JOBS
Featured jobs