In a conference call with reporters Monday, S&P’s global head of sovereign ratings, David Beers, said the agency took the action after warning for years of “what we considered to be the gradual deterioration of the U.S. fiscal profile.”
The deterioration was hastened, Beers said, by December’s $858 billion deal between the White House and congressional Republicans to cut the payroll tax for one year and to extend a variety of George W. Bush-era tax cuts through 2012.
S&P analysts said they had hoped that Obama’s fiscal commission, which offered a plan in December to reduce borrowing by nearly $4 trillion over the next decade, would provide the needed momentum to rein in the debt. But Obama declined to embrace those recommendations and put out a budget plan in February that was “below our expectations,” analyst John Chambers said.
Now, the analysts said, odds for a prompt resolution look especially grim. “When you pull all this together . . . we think the fiscal profile of the United States is increasingly diverging from a number of its AAA peers,” Beers said.
The report also fed into the debate about whether to raise the legal limit on government borrowing. Republicans want spending cuts as a condition of increasing that limit; the White House has said that a vote to raise the debt limit should not be linked to other issues. The deadline is early July.
“S&P sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit,” said House Majority Leader Eric Cantor (R-Va.). “The debt limit increase proposed by the Obama administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt.”
But Rep. Peter Welch (D-Vt.) said the S&P report underscored the danger of using the debt limit as an occasion for political haggling over spending, because failure to raise the limit would leave the government in default — demonstrating the inability of the political system to manage the nation’s finances.
“I hope Majority Leader Cantor and those in Congress seizing upon debt ceiling pressure as a leverage opportunity are listening to the markets today and thinking twice about their risky strategy,” said Welch, who on Monday released the names of 114 House Democrats who support his position. “If Mr. Cantor persists in playing politics with the debt limit, he will be held accountable for unleashing the financial hounds of hell.”
On Monday, another major credit rating agency, Moody’s, issued a routine report holding the U.S. rating steady and calling it a “positive” that lawmakers are seriously discussing deficit reduction. But it also noted that the outcome of those talks is unknown and that the United States is the only major country that does not have a plan in place to curb the growth of its debt.
Loading...
Comments