Two More Calls for the U.S. to Tackle Its Debt
Two recent warnings over the United States' fiscal outlook are worth taking a look at. First, Bank of America Merrill Lynch released a report last week voicing concerns about the Super Committee and the risk of another potential credit-rating downgrade if they don't succeed. Second, the Government Accountability Office (GAO) released its most recent update on The Federal Government's Long-Term Fiscal Outlook.
The report from Bank of America Merrill Lynch, released Friday, warns that if the Super Committee fails to enact a fiscal reform package significant enough to reassure markets, the U.S. may face another credit rating downgrade from a rating agency -- possibly as soon as late November or December. According to the LA Times, Bank of America's North American economist Ethan Harris is doubtful that the Super Committee will be able to reach such a comprehensive fiscal plan, and that credit rating agencies will respond accordingly:
“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan,” Harris wrote. “Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes.”
While the credit rating agency Standard & Poor's (S&P) has already downgraded the U.S. from AAA to AA+, the two other largest agencies -- Moody's Investors Services and Fitch Ratings -- still rate the United States AAA. Moody's, however, like S&P, has the outlook on the U.S. credit rating outlook as "negative" (Fitch Ratings maintains a "stable" outlook on the U.S. credit rating).
The Bank of America report, while pessimistic, further underscores the need for the Super Committee to exceed expectations and its saving mandate by enacting a bipartisan, comprehensive fiscal reform plan that stabilizes and reduces the debt.
Turning to the GAO, their latest report says that while the United States' long-term fiscal outlook has improved since its previous report from January 2011 and that much of this improvement is due to the Budget Control Act (BCA), their simulations "continue to underscore the need to address the longer-term outlook as soon as possible while still recognizing the current weakness in the economy." Rising health-care costs and the aging of the population are cited as sources of budgetary pressure, as more members of the baby-boom generation retire and become eligible for Social Security and other federal health programs.
The report concludes:
Our simulations show that the Budget Control Act of 2011 will help reduce deficits. However, the longer-term fiscal challenge remains. The Joint Select Committee has the opportunity to improve the federal budget outlook by making changes to the structural imbalance between revenues and spending. Addressing the long-term fiscal challenge will not be easy. It will likely require difficult decisions affecting both federal spending and revenue.
There you have it -- two additional warnings that we need to get our finances in shape. Let's hope the Super Committee is listening.