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US credit rating downgrade looking likely
Wed Jul 27, 2011 1:55PM GMT|
Market analysts and investors increasingly say the U.S. will lose its top credit rating even if a deal is reached to raise the debt limit, according to a Huffington Post report.
The report says the outcome won't be quite as scary as a default, but financial markets would still take a blow. Mortgage rates could rise. States and cities, already strapped, could find it more difficult to borrow. Stocks could lose their gains for the year.
"At this point, we're more concerned about the risk of a downgrade than a default," said Terry Belton, global head of fixed income strategy at JPMorgan Chase. In a conference call with reporters Tuesday, Belton said the loss of the country's AAA rating may rattle markets, but it's "better than missing an interest payment."
Even with a deadline to raise the U.S. debt limit less than a week away, many investors still believe Washington will pull off a last-minute deal to avoid a catastrophic default. Washington has until Aug. 2 to raise the country's $14.3 trillion borrowing limit or risk missing a payment on its debt. President Barack Obama and Congressional Republicans have failed to reach an agreement to raise the debt ceiling and pass a larger budget-cutting package. Politicians have tied raising the debt limit and spending cuts together.
But at least one credit rating agency has already made it clear that unless that agreement includes at least $4 trillion in budget cuts over the next decade, the country's AAA rating could be lost. Right now, the proposals under discussion cut around $2 trillion or less.
Standard & Poor's warned earlier this month that there was a 50-50 chance of a downgrade, if Congress and President Obama failed to find a "credible solution to the rising U.S. government debt burden." S&P said it may cut the U.S. rating to AA within 90 days. Passing a $4 trillion agreement could prevent a downgrade, S&P said. Huffington Post
FACTS & FIGURES
The U.S. Treasury is borrowing $4.22 billion per day, adding to the current debt. Real Clear Politics
A U.S. Treasury Department report to Congress forecasts that the U.S. debt will rise to $19.6 trillion by 2015. Reuters
Congress has raised the federal debt limit 10 times over the past 10 years. National Journal