Tags: S&P | downgrade | American economy | credit rating

S&P's Chambers: Three Years After Downgrade, US Isn't Out of Woods

Tuesday, 05 Aug 2014 02:15 PM

By Dan Weil

It was three years ago today that Standard & Poor's cut the U.S. government's credit rating from triple-A to double-A-plus.

Some of the problems that sparked the downgrade remain with us, says John Chambers, managing director of sovereign ratings for S&P.

"Probably the biggest negative on the rating right now is the political brinksmanship that led to the downgrade in 2011," he told CNBC. "And we think our call was validated in 2013, when again we were on the brink of default with the discussion over raising the debt ceiling."

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

While the U.S. budget deficit is shrinking sharply — to $680 billion in fiscal 2013 from $1.1 trillion in 2012 — "the level of debt to GDP doubled since the recession," Chambers said.

"Now, that in itself is fine because you want to be able to respond in that manner to a deep recession, but you need a medium-term plan to have debt as a share of the economy decline over time. That plan is not on the table."

Boston University economist Laurence Kotlikoff also is quite concerned about government debt.

Based on the Congressional Budget Office's projection of what will happen without major policy changes, he calculates that the "fiscal gap," a measurement of government debt, totaled $210 trillion last year.

That put the true budget deficit at $5 trillion, Kotlikoff writes in The New York Times.

"The fiscal gap — the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts — is, effectively, our nation’s credit card bill," he says.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

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