Fitch warns it may downgrade US over debt standoff

Published on NewsOK Modified: January 15, 2013 at 11:40 am •  Published: January 15, 2013
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"The 'fiscal cliff' bullet was dodged .... (but it's) a short-term patch," said Riley.

Riley warned that the different arms of the U.S. government still have a number of issues to address. As well as increasing the debt ceiling, they have to agree to spending cuts that were delayed as part of the "fiscal cliff" agreement and back measures to avoid a government shutdown, potentially in March.

Though short-term fixes are more likely than not, Riley said the U.S. political environment is not as good as it should be for a country holding the gold-chip AAA rating. The past few years, Riley said, have been marked by "self-inflicted crises" between deadlines.

Overall, Fitch reckons the debt ceiling is "an ineffective and potentially dangerous mechanism for enforcing fiscal discipline."

The major reason behind the lack of swift action in the U.S. is that the Democrats control the White House and the Senate, while the Republicans have a solid majority in the House of Representatives. Both sides have differing visions of the role of the state in society and often varying political objectives.

Despite his cautious tone on the rating, Riley said the U.S. has a number of huge advantages and that getting the country's public finances into shape will not require the same level of austerity that many countries in Europe have had to enact over the past few years, partly because the U.S. economy is growing at a steady rate.

Other factors Fitch says support the U.S.'s AAA rating are the country's economic dynamism, lower financial sector risks, the rule of law as well as the global benchmark status of the country's bonds and the dollar.

However it says these "fundamental credit strengths are being eroded by the large, albeit steadily declining, structural budget deficit and high and rising public debt."



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