The head of China’s central bank welcomed the deal to raise the limit but urged Washington to avoid further steps that might hurt investors. “Large fluctuations and uncertainties in this market would undermine the stability of the international financial system and hinder global recovery,” Zhou Xiaochuan said in a statement posted on the central bank’s website.
Despite immediate relief in Washington that a government default had been averted, America’s creditors remain concerned that the political breakthrough did not translate into the far-reaching steps the United States needs to take to restore its financial health.
The agreement fell short even of the goals set by members of both U.S. political parties, who had said the government needs to find at least $4 trillion in savings to bring the national debt under control. Recent promises by political leaders that they would address the dangers posed by ballooning debt only raised expectations that were not met.
The lack of enthusiasm among investors for the deal was reflected in the U.S. markets. Stocks on Tuesday had their worst day in nearly a year, wiping out the gains made so far in 2011. Amid mounting fears that the U.S. economy could be slipping back into recession, both the Dow Jones Industrial Average and the Standard & Poor’s 500 indexes were down more than 2 percent.
The debt agreement, which won final passage in Congress on Tuesday and was signed by Obama, offers few measures to invigorate the anemic economic recovery.
Nor has the deal allayed all the concerns of credit-rating companies, which have threatened to downgrade the United States if the national debt is not brought to heel — echoing similar warnings made to Greece and other European countries facing debt crises.
“While the agreement is clearly a step in the right direction, the United States, as in much of Europe, must also confront tough choices on tax and spending against a weak economic backdrop if the budget deficit and government debt is to be cut to safer levels over the medium term,” Fitch Ratings said Tuesday.
Meanwhile, Moody’s Investors Service said it had confirmed the government’s AAA rating but placed it on “negative,” indicating it could still downgrade. Moody’s said it would cut the top-notch rating if lawmakers don’t follow through with their promises to bring spending in line with revenues. The firm also said a downgrade could come if the U.S. economy stumbles or interest rates rise significantly on Treasury bonds.
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