Fitch Comments on U.S. Fiscal Situation
Once again, ratings agencies are warning the United States that our current fiscal outlook is not sustainable and we risk further downgrades unless we change course. Following their November 28th decision to put the U.S. on a negative outlook, Fitch warned the U.S. again yesterday by saying that our current rising debt trajectory was “not consistent” with our AAA credit rating.
“High and rising federal and general government debt burden is not consistent with the US retaining its ‘AAA’ status despite its other fundamental sovereign credit strengths.”
Furthermore, Fitch noted that the failure of the Super Committee brought to light the current difficulties in reaching an agreement, and stated that continuing to put off necessary difficult decisions will just make them worse:
“The Congressional Joint Select Committee on Deficit Reduction (the so-called Super Committee) failed to agree at least USD1.2trn of deficit reduction measures as tasked under the Budget Control Act passed in August 2011. The lack of agreement underlines the challenge of securing broad-based consensus on how to reduce the outsize budget deficit and contain the rise in federal debt.”
“By postponing the difficult decisions on tax and spending until after the forthcoming Congressional and Presidential elections, the scale and pace of required deficit reduction will consequently be greater.”
While Fitch has kept our AAA rating and kept us on a negative outlook, they note how important 2013 is and how poor our fiscal situation looks. While they acknowledge that our economy can handle larger debt than others, we are not immune to a fiscal crisis. The credit markets are certainly paying attention to us and are well aware of the fact that time is running short. Our policymakers need to agree on a comprehensive fiscal plan.
Click here to read our paper on the S&P downgrade this summer.