Tags: Egan-Jones | Fiscal | Cliff | Rating

Egan-Jones: Fiscal Cliff Deal Won't Necessarily Save US Rating

Tuesday, 06 Nov 2012 10:01 AM

Success on the part of Congress to steer the country away from a combination of tax hikes and spending cuts striking the economy at the same time won't necessarily save the country from a ratings downgrade, said Sean Egan, managing director of Egan-Jones, a ratings firm that has cut America’s sovereign debt rating twice this year.

At the end of this year, the Bush-era tax cuts and other tax breaks are scheduled to expire right at the same time automatic cuts to government spending outlined during the 2011 debt-ceiling deal are poised to kick in, a combination known as a fiscal cliff that could send the country into recession next year.

The nonpartisan Congressional Budget Office has estimated that failure to address the cliff could contract the economy by 0.5 percent next year.

Editor's Note: Google Banned This Video But You Can Watch it Here

Successfully sidestepping the cliff by punting deadlines doesn't change the reality that the country's debt burdens are too high as a measure of gross domestic product (GDP).

"The key measure on sovereign credit quality is debt-to-GDP, in the case of the U.S., it’s risen rather dramatically, from four years ago at 75 percent debt-to-GDP, to currently over 104 percent,” Egan told CNBC.

“The problem in the U.S. is that the debt has grown whereas the GDP has not grown. (While) the U.S. has had the benefit of being the major reserve currency, that only takes it so far.”

Egan-Jones cut U.S. credit ratings to AA from AA-plus in April due to debt concerns and then trimmed the rating again to AA-minus in September on concerns monetary stimulus measures could affect U.S. credit quality.

Investors, meanwhile, are growing increasingly anxious, adding recent presidential debates didn't address the issue near enough.

"The most important issue affecting the next president will be how they deal with the fiscal cliff, and not one question from one of the (debate) interviewers ... was how are you going to deal with that," Laurence Fink, CEO of BlackRock, the world's largest asset manager, said recently, according to Reuters.

Failure to deal with the cliff would have global ramifications.

“Time is of the essence and significant policy uncertainty in Washington must be addressed,” International Monetary Fund Managing Director Christine Lagarde told reporters at a G-20 meeting, according to Bloomberg.

“It will be important for the U.S. to address quickly the so-called fiscal cliff.”

© 2015 Moneynews. All rights reserved.

Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Zip Code:
Privacy: We never share your email.
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

CEI's Carrie Sheffield: Govt Suit Against S&P a 'Chilling Precedent'

Friday, 30 Jan 2015 21:27 PM

The government's case against Standard & Poor's over its rating of home mortgage bonds prior to the 2008 financial crisi . . .

HIF's Tom Hutchinson: Recession to Put Us in 'Deeper Hole'

Friday, 30 Jan 2015 20:44 PM

The U.S. economy is in great shape now, but the next recession won't be pretty, Tom Hutchinson, the senior editor of the . . .

Kudlow: After Romney, a GOP Message of Incentives and Growth

Friday, 30 Jan 2015 20:20 PM

If there’s anything the GOP needs , besides a winner , it’s a confident, incentive-based, pro-growth message. The party  . . .

Most Commented

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
©  Newsmax Media, Inc.
All Rights Reserved