Tags: S&P | Deficit | Cut | Payment

S&P: $4 Trillion Deficit Cut Is ‘Good Down Payment’

Thursday, 28 Jul 2011 05:17 PM

Standard & Poor’s reiterated that a $4 trillion deficit cut would be a “good down payment” toward stabilizing U.S. finances, according to John Chambers, chairman of the company’s sovereign rating committee.

The Senate is likely to begin voting this weekend on an a proposal from Senate Majority Leader Harry Reid to raise the nation’s debt limit by the full $2.4 trillion President Barack Obama has requested, while cutting $2.2 trillion over a decade. Reid said today he will move tonight to kill House Speaker John Boehner’s plan to cut $915 billion over 10 years. The Treasury had set Aug. 2 as the date for when it would exhaust its borrowing capacity.

“$4 trillion would be a good down payment,” Chambers said in a video interview distributed by the New York-based ratings firm. “A grand bargain of that nature would signal the seriousness of policy makers to address the fiscal situation in the U.S.”


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S&P, which has given the U.S. a top AAA ranking since 1941, said on July 14 that the chance of a downgrade is 50 percent in the next three months and may cut the rating as soon as August if there isn’t a “credible” plan to reduce the nation’s deficit.

“The $4 trillion, depending on whether it’s front loaded or back loaded, is not going to do the trick in terms of stabilizing the U.S. government debt to GDP ratio,” Chambers said. “But it takes you pretty far along.”

The Treasury will give priority to making interest payments to holders of government bonds when due if lawmakers fail to reach an agreement to raise the debt ceiling, according to an administration official. The official requested anonymity because no announcement has been made.

The U.S. has said about $90 billion in debt matures on Aug. 4 and more than $30 billion in interest comes due Aug. 15. Overall, more than $500 billion matures in August.

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Standard Poor s reiterated that a $4 trillion deficit cut would be a good down payment toward stabilizing U.S. finances, according to John Chambers, chairman of the company s sovereign rating committee.The Senate is likely to begin voting this weekend on an a proposal...
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