We've talked before on The Bottom Line about why lawmakers should not wait to deal with our unsustainable debt. Among the most important reasons for dealing with deficits now is the chance to improve confidence in our nation's finances and avoid a fiscal crisis.
Following the enactment of the American Tax Relief Act a few weeks ago, two top credit rating agencies--Moody's and Standard & Poor's--announced a wait-and-see approach on the U.S. credit rating. This came as a result of the fiscal cliff deal containing inadequate savings to put the debt on a sustainable fiscal path, lack of decision on the debt ceiling, and a two month delay of the sequester.
With time running out for a deal, the U.S. credit rating may be in jeopardy if lawmakers don't reach a compromise to replace the fiscal cliff. Fitch is the latest credit rating agency to warn that failure to come to an agreement would likely lead the U.S. to lose its AAA status. From Fitch's Global Sovereign Review (login required):
Fitch Ratings Managing Director David Riley appeared yesterday on Bloomberg Television, suggesting that the fiscal cliff could threaten the U.S.'s AAA credit rating. While Fitch did not join S&P last August in downgrading the U.S. after the debt ceiling debate, it has kept the U.S. on a negative outlook, indicating that it could change its position in the next 12 months.
The McKinsey Global Institute recently released a report assessing the efforts of the world’s ten largest mature economies (United States, Japan, Germany, France, United Kingdom, Italy, Canada, Spain, Australia, and South Korea) in deleveraging (essentially, reducing debt) in the aftermath of the great recession.
Once again, ratings agencies are warning the United States that our current fiscal outlook is not sustainable and we risk further downgrades unless we change course. Following their November 28th decision to put the U.S. on a negative outlook, Fitch warned the U.S. again yesterday by saying that our current rising debt trajectory was “not consistent” with our AAA credit rating.
This afternoon Fitch Ratings lowered the outlook on the United States' credit rating from stable to negative.