Needless to say, it is not pretty. Apparently the ratings agency figured out that the population has elected a bunch of grown-ups with the mentality of children on both sides of the aisle.
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Fitch noted that the Congressional Joint Select Committee’s failed effort on the deficit reduction for at least $1.2 trillion of deficit cuts shows the challenge of any broad-based consensus on reductions. Postponing the tax and spending decisions after the coming election will now require even greater cuts in the future. Fitch now believes that at least $3.5 trillion of additional deficit reduction measures will be required to stabilise federal debt at levels close to 90% of GDP by the latter half of this decade.
Fitch sees federal debt held by the public going above 90% of GDP by the end of the decade, and the belief is that the federal debt will rise without tax and spending reforms. Rising healthcare costs and social security spending are meeting an aging population.
In short, the “high and rising federal and general government debt burden is not consistent with the U.S. retaining its ‘AAA’ status despite its other fundamental sovereign credit strengths.”
Here is why the election matters so much: “A key task of an incoming Congress and Administration in 2013 is to formulate a credible plan to reduce the budget deficit and stabilise the federal debt burden. Without such a strategy, the sovereign rating will likely be lowered by the end of 2013. Agreement will also have to be reached on raising the federal debt ceiling, which is expected to become binding in the first half of 2013.”
Fitch’s full press release is here.
JON C. OGG
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