Fitch Again Warns US Debt Burden Threatens AAA Rating

They just want to make it clear that along with S&P and Moody’s they don’t understand the difference between issuers of a currency and users of a currency.

Fitch Again Warns US Debt Burden Threatens AAA Rating

Dec 22 (Reuters) — Fitch Ratings on Wednesday warned again that the United States’ rising debt burden was not consistent with maintaining the country’s top AAA credit rating, but said there would likely be no decision on whether to cut the rating before 2013.

Last month, Fitch changed its U.S. credit rating outlook to negative from stable, citing the failure of a special congressional committee to agree on at least $1.2 trillion in deficit-reduction measures.

“Federal debt will rise in the absence of expenditure and tax reforms that would address the challenges of rising health and social security spending as the population ages,” Fitch said in a statement.

“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,” the ratings agency said.

In a new fiscal projection, Fitch said at least $3.5 trillion of additional deficit reduction measures will be required to stabilize the federal debt held by the public at around 90 percent of gross domestic product in the latter half of the current decade.

Fitch, when it lowered its outlook to negative, had said it was giving the U.S. government until 2013 to come up with a “credible plan” to tackle its ballooning budget deficit or risk a downgrade from the AAA status.

“A key task of an incoming Congress and administration in 2013 is to formulate a credible plan to reduce the budget deficit and stabilize the federal debt burden. Without such a strategy, the sovereign rating will likely be lowered by the end of 2013,” Fitch reiterated.

Rival ratings agency Standard & Poor’s cut its credit rating on the United States to AA-plus from AAA on August 5, citing concerns over the government’s budget deficit and rising debt burden as well as the political gridlock that nearly led to a default.

On November 23, Moody’s Investors Service, warned that its top level Aaa credit rating for the United States could be in jeopardy if lawmakers were to backtrack on $1.2 trillion in automatic deficit cuts that are set to be made over 10 years.

The plan for automatic cuts was triggered after the special congressional committee failed to reach an agreement on deficit reduction. Moody’s said any pullback from the agreed automatic cuts to take effect starting in 2013 could prompt it to take action.

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17 Responses to Fitch Again Warns US Debt Burden Threatens AAA Rating

  1. Jacob Goense says:

    There is still that pesky `willingness to pay’ issue. Having to increase the debt limit through congress etc..

    Reply

  2. Monica Smith says:

    A rating agency presuming to critique the issuer of a currency! Talk about insubordination! Of course, if our various police agencies are any indication, insubordination seems all the rage.

    Reply

    WARREN MOSLER Reply:

    where we need a lot more transparency is the FDIC as there’s a general lack of confidence in their solvency assessments

    Reply

  3. Nick Boyd says:

    Hehe, that is like pointing in 2006-07 that the MBS were going up. When you are inside a bubble (government bubble), you don’t see it. Not convincing at all.

    Reply

  4. Nick Boyd says:

    The difference between issuers of currency and users of currency… Hmm… Why does this difference even matter? In other words, how is inflating your debt with added (used to be printed) money not a default? If the U.S., without producing almost anything, keeps giving other countries pieces of paper in return for real production, how is that not defaulting on the debt? I would have downgraded the U.S. too, and a long-long time ago.

    Reply

    Jackson Reply:

    @Nick Boyd,

    Nick,

    First off, if there were an inflation issue, all bonds issued is US$ would have to be downgraded for you to be consistent. However, there is no inflation problem (witness the bond bull market) and Fitch is not equipped to make inflation forecasts. They can’t even get credit quality which is much easier correct.

    Reply

    Unforgiven Reply:

    @Jackson,

    Seems a non-convertible free-floating currency like ours doesn’t have a fixed exchange rate, by definition? So any “technical default” arguments are moot.

    In any case, if it makes you feel better, we would seem to be going opposite the direction you’re speaking of. Take a look at the 5 yr. chart of DXY and tell me which way it’s trending. This, after the sizable deficits of the last two administrations. http://mikenormaneconomics.blogspot.com/2011/12/fed-prints-29-trillion-dollar-goes-up.html

    Reply

    Unforgiven Reply:

    @Jackson,

    Sorry, that was supposed to be for Nick.

    Reply

    WARREN MOSLER Reply:

    if you want to define ‘default’ as ‘inflation’ then every country in the world has been continuously defaulting, etc. and you’re just talking about inflation.

    default for the purpose of most discussion, including this one, is defined as not meeting a payment in a timely manner.

    Reply

    Monica Smith Reply:

    @Nick Boyd, What’s the difference between what you’ve written in this comment and saying it out loud? Writing makes the spoken word visible and, if the script is in Brail, tangible. Currency does the same for the value of a product. Makes it easier to pass around. The currency, like the ink on paper, is worthless in itself. Value is related to use. Money is to be spent.

    Reply

  5. Tom Hickey says:

    The entire US govt yield curve is falling through the floor. Fitch must think that there is something fishy will that. Martians buying?

    Imbecilic — unless politically motivated to encourage imposition of austerity in order to gut “the welfare state” and open up SS and Medicare to FIRE, After all, the rating agencies are a de facto subsidiary of the financial sector. Conflict of interest here? Oh right, outlandish conspiracy theory.

    Reply

    roger erickson Reply:

    @Tom Hickey, I’ve switched to a new expletive. SonuvaFitch! It’s Slavic :)

    Reply

  6. Unforgiven says:

    In light of this impending downgrade, I propose the following:

    1. Eliminate the automatic deficit cuts immediately.

    2. Erect billboards outside the “Big 3″ rating agencies with the caption:

    “America to Moody’s – Bring it!”

    Pay the ad agencies and workers well and publicize the amounts involved.

    3. Create hand-made solid gold dunce caps for every officer and employee of the “Big 3″.

    4. Send MMT-certified instructors to OWS sites (and foreign equivalents) in the cities where these clowns “work”. Conduct open-air trainings and tests daily. Watch out, they have a “cheat-sheet” corporate culture, so make sure their janitors aren’t around for them to copy answers from.

    5. They all get night jobs at local ‘healthy’ fast food shops, making meals for OWS. When they become certified in MMT, they can go back to their regular jobs, on 1 yr. probation. They will automatically be given a student loan for their education, which must be paid back in USD or community service. Once the loan is paid, they can sell the Dunce cap on the open market.

    Reply

  7. pebird says:

    So would any financial instrument denominated in USD be rated above US government debt?

    Maybe the rating agencies should base risk off of AAA rated mortgage backed securities

    Reply

  8. Tom says:

    What a bunch of fools.

    I cant believe no one ever sat down and just took the 5 minutes to think to themselves…

    “If I create something at will, that means I cannot run out of it, right? Right!”

    Reply

    roger erickson Reply:

    @Tom, The relevant studies has been done. Multiple times, years ago. Results show a long response curve, from ~30 seconds, to [still waiting], plus those still asking, “What was the question?”

    Our core issue is orthogonal. Comparative studies have shown the biggest difference between study repetitions is the growing #s still blinking & asking “What was the question?”

    Divide & conquer has been successfully replaced by distract-&-conquer.

    Reply

    Tom Reply:

    @roger erickson,

    Or maybe its even replaced by distract-stupify-conquer these days.

    Reply

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