AppId is over the quota
AppId is over the quota
(Reuters) — A growing number of U.S. lawmakers do not think another downgrade of the country's AAA rating will harm America's economy, raising questions about how much pressure Congress is under to fix the intractable budget deficit.
Analysts warn, however, that signs of complacency on Capitol Hill threaten efforts to cure America's long-term fiscal health.
U.S. bond markets defied predictions of a jump in borrowing costs since August when Standard & Poors downgraded the country's AAA credit rating, after the debt ceiling crisis.
Tim Ryan, a Democrat on the House Budget Committee, said there was broad sentiment in Congress that the U.S. economy would not necessarily suffer from a downgrade by the other two big agencies -- Fitch and Moody's -- that still rate U.S. debt as AAA.
Ryan cited the role of the three major agencies in the buildup to the 2008 financial collapse, when they gave AAA ratings to the toxic mortgage-backed securities at the heart of the crisis.
[See a collection of political cartoons on the budget and deficit.]
Since then, Ryan said, "the credit rating agencies have lost a tremendous amount of credibility. The U.S. is still the safest investment to make" -- meaning another downgrade may little influence how investors view U.S. debt.
When it comes to fixing the economy and sentiment on Capitol Hill, "I don't think the ratings agencies' analysis is the major issue," Ryan told Reuters.
A congressional bipartisan "super committee" is tasked with finding ways to cut the budget deficit by at least $1.2 trillion over 10 years by November 23. If it gridlocks, across-the-board spending cuts of $1.2 trillion are due to begin in 2013. However, some analysts say they could yet be undone by a new Congress elected next year.
It is unclear how most members of the super committee feel about the risk of another downgrade. But even if they reach a deal it must be passed by the full Congress, too.
Ratings agencies analysts have said they are watching closely for signs that U.S. politicians can come to grips with the country's fiscal mess.
Stephen Hess, Moody's lead analyst for the United States, said an immediate downgrade is unlikely even if the super committee flopped.
"That would be negative information but it is not decisive in our view about the rating," Hess told Reuters.
Moody's wants to look at other factors in the coming year, such as the result of the presidential election, the next annual budget, the overall economy and whether any of the Bush-era tax cuts expire at the end of 2012, he said.
FEAR FACTOR DIMINISHES
"The reaction to the S&P downgrade has reduced the fear factor on Capitol Hill," said Steve Bell of the Bipartisan Policy Center, which has been urging lawmakers to come up with a broad deficit-reduction plan.
[Check out a roundup of editorial cartoons on the economy.]
Bell, who supported the S&P downgrade because he thought it would galvanize Congress to deal with deficits, said he had spoken recently with half-a-dozen senior congressional staff members from both parties.
"I was surprised by the nonchalance" to the prospect of another downgrade, Bell said. "The attitude on the Hill is, 'Treasuries are the safest place to put money at the moment, because look what happened after the S&P downgrade.' It is the worst possible outcome from the debt limit crisis."
S&P's downgrade in August seems to have encouraged investors to buy more U.S. Treasury bonds -- yields are now lower than before the downgrade -- but it triggered big losses on the U.S. stock market and was followed by a resurgence in concern about the debt crisis in the euro zone.
Many analysts believe that the expiration of the Bush-era tax cuts at the end of 2012 may be the only true galvanizing force on Congress to reach a deficit-reduction deal.
If Republicans want to keep some or all of those tax cuts, they may finally be forced to agree to Democratic demands for revenue increases -- which Republicans have so far resisted -- as part of a deal to pay down the U.S. national debt.
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