18.1.2013 > Articles > MacroeconomicComment
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United States: Debt Ceiling, Credit Rating By: Ian Campbell

A report yesterday said that both Fitch and Moody's have a negative view on the U.S. economic outlook, and that Fitch has warned that if the U.S. Federal Government fails to raise the debt ceiling in a 'timely manner' (whatever that means) it will prompt a formal review of Fitch's current AAA U.S. credit rating.

You will recall that Standard & Poor's made big headlines in August 2011 when it then dropped its U.S. credit rating from AAA in the aftermath of the last U.S. debt ceiling negotiations.

I am not reading too much into any of this. Expect a lot of media focus on the upcoming U.S. debt ceiling negotiations. I say 'expect more of the same' by way of partisan political position, and dysfunctional negotiations - but in the end expect:

  • the U.S. debt ceiling to be raised;
  • the U.S. to continue to run deficits; and,
  • further debt ceiling debates going forward.

You might also want to read The Debt Ceiling Is Pointless and Dangerous and Practically All Economists Agree, an article that says practically all U.S. economists agree that the existence of the U.S. debt ceiling results in unneeded economic uncertainty, and 'can potentially lead to worse fiscal outcomes'.

I disagree that the U.S. debt ceiling concept is wrong-headed. U.S. Federal spending is out of control when measured against its current GDP and near-term economic growth prospects. The debt ceiling is the only real 'check and balance' barrier to U.S. Federal Government spending I know of in circumstances of a polarized U.S. Federal government.

Source: Economic Straight Talk


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