Time is running out as the August 2nd budget deadline approaches and Senators of all colors, shapes, sizes and political affiliations trade blows over a debt deal; market analysts and interested investors tend to agree that the U.S. faces a very real danger of losing its triple-A credit rating.
“We may lower the long-term rating on the U.S. by one or more notches into the ‘AA’ category in the next 3 months, if we conclude that Congress and the administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future,” a Standard & Poor representative told Bloomberg this week.
Moodys, another financial rating agency would more than likely follow.
The rating agency, which has kept the U.S. at the top of the credit food chain since 1917, cautioned that unless the debt threshold is raised in time, the U.S. could… face ratings downgrade from its company.
Earlier in the month, S&P publicly shared that there was a 50% change it would downgrade its credit rating by the end of the summer unless politicians could develop a $4 trillion proposal in budget cuts.
Currently, the figures on the table are close to a single trillion.
According to Pimco CEO, Mohamed A. El-Erian, if the U.S. government can secure a budget strategy, the sacred AAA may be at risk, even still.
He anticipates that a political compromise will be reached by the skin of the nation’s teeth, however its credit rating may be vulnerable regardless.
Former federal budget director under President Reagan, David Stockman, told CNBC Thursday that he agrees, adding it will only serve as a short-term solution.
“The problem is not the ceiling, but the debt,” he said. “…it’s the $6 billion a day that we’re borrowing day in and day out.”
In a Reuters poll, more than half of the 53 economists surveyed reason that a credit status downgrade is inevitable considering the current debt and surrounding market insecurity.
According to WallStreetDaily.com, experts are discussing dollar amounts that could result from potential economic fallout if the AAA credit rating is lost, stating it could cost the U.S. $100 billion in additional interest payments.
Furthermore, consumer sentiment is anticipated to fall to new lows in the backlash.
Obama stressed in his press conference Monday evening the unprecedented nature of such a market event in American history.
In the second quarter, the United States’ economic expansion has taken place at a leisurely pace as increased fuel prices have crippled consumer spending and supply disruptions have limited production. Ultimately, with current credit danger among an ever-increasing number of risk factors, the economy seems to have a domino effect.
“The debt declining debacle unambiguously translates into an intensification of the already strong headwinds facing U.S. growth and employment creation,” said El-Erian.
Stockman added that perhaps a lowered credit rating might get the show on the road, serving as just the motivation the nation needs to get on the right track.
“The credit agencies ought to get it over with, cut the rating and begin to create some reality both in terms of financial markets and the American public.”
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