Tags: Goolsbee Obama | Republicans Close on Debt-Cut Amount

Goolsbee: Obama, Republicans Close on Debt-Cut Amount

Monday, 18 April 2011 03:46 PM

President Barack Obama’s chief economic adviser rejected the negative outlook Standard & Poor’s placed on the U.S. AAA credit rating as a “political judgment” that he said doesn’t deserve “too much weight.”

“They are saying their political judgment is that over the next two years they didn’t see a political agreement” to reduce long-term deficits, Austan Goolsbee, chairman of the Council of Economic Advisers, told Bloomberg Television’s InBusiness with Margaret Brennan. “I don’t think that the S&P’s political judgment is right.”

Goolsbee said Obama and Republican congressional leaders are “pretty close” in the deficit reduction targets they have announced. Each has set a target of $4 trillion, though House Republicans have a timeline of 10 years and the White House proposal would cumulatively cut that amount over 12 years.

“They agree that we got to take some significant actions” that “promote fiscal responsibility,” Goolsbee said.

In an earlier interview on MSNBC, he said: “I believe we can get to some long-term deficit reduction that would address these issues that S&P’s discussing.”

Tax Dispute

Despite similar deficit reduction targets, Obama and House Republicans disagree on how to reach the goal. While Obama has proposed $1 trillion in tax increases, House Republicans reject any new taxes. Republican also would overhaul the Medicare health insurance program for the elderly to transform it into a subsidy to purchase private insurance, a change Obama rejects.

S&P today reaffirmed the U.S. government’s AAA rating and revised its long-term outlook to “negative,” citing rising budget deficits and debt.

“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013,” New York-based S&P said in a statement. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

Goolsbee said the assessment “wasn’t a political probability that even the other ratings agencies necessarily agree with.”

Moody’s Rating

Moody’s Investors Service reaffirmed the top rating for U.S. sovereign debt, with a stable outlook.

The S&P 500 declined 1.5 percent to 1,299.47 at 11:51 a.m. in New York, its biggest drop since March 16. The yield on the 10-year Treasury note was little changed at 3.41 percent, erasing an earlier gain. The euro lost 1.5 percent to $1.4210 against the dollar.

Mary Miller, assistant U.S. Treasury secretary for financial markets, said in a statement the S&P’s outlook “underestimates” U.S. leadership.

“We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” Miller said in the statement.

House Majority Leader Eric Cantor, a Virginia Republican, said in a statement that the S&P announcement is a “wakeup call” to “stop our nation from digging itself further into debt.”

“House Republicans will only move forward on the president’s request to increase the debt limit if it is accompanied by serious reforms that immediately reduce federal spending,” Cantor said.

‘Outperform S&P’s Expectations’

White House press secretary Jay Carney said Obama is confident that prospects for agreement on debt reduction are better than S&P expects.

“The political process will outperform S&P’s expectations,” Carney told reporters at a briefing today. “The fact is that when the issues are important, history shows that both sides can come together and get things done.”

Four U.S. companies have AAA ratings from S&P, like the federal government’s. They are: Automatic Data Processing Inc., Microsoft Corp., Exxon Mobil Corp. and Johnson & Johnson, according to data compiled by Bloomberg. If the U.S. is cut to AA+, the government would have the same rating as General Electric Co., W.W. Grainger Inc., and Berkshire Hathaway Inc.

Under the White House’s fiscal year 2012 budget, released in February, the total debt subject to the ceiling would be $20.8 trillion in 2016. The plan House Republicans approved April 15, written by Budget Committee Chairman Paul Ryan of Wisconsin, would need a debt ceiling of at least $19.5 trillion, according to data compiled by Bloomberg Government.

Debt Ceiling

The Treasury Department projected that the government may reach the $14.3 trillion debt ceiling limit as soon as mid-May and run out of options for avoiding default by early July.

Last week, Moody’s Investors Service said Obama’s plan to cut $4 trillion in cumulative deficits within 12 years may be a “positive” for the nation’s credit quality and mark a reversal in the budget debate.

The U.S. is the only large AAA rated country that saw its debt rise during the crisis that until recently had no plan that would reverse the trend, Steven Hess, senior credit officer at Moody’s, said last week.

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President Barack Obama s chief economic adviser rejected the negative outlook Standard Poor s placed on the U.S. AAA credit rating as a political judgment that he said doesn t deserve too much weight. They are saying their political judgment is that over the next...
Goolsbee Obama,Republicans Close on Debt-Cut Amount
Monday, 18 April 2011 03:46 PM
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