Will the Fiscal Cliff Clash Damage the U.S. Credit Rating?

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There are less than fifty days left for lawmakers to come to agreement on the fiscal cliff, but uncertainty surrounding the dilemma is already affecting the economy. The political bickering over solving the fiscal cliff issue now has put the U.S. AAA credit rating at risk again.

In early September ratings agency Moody's Corp. (NYSE: MCO) announced it would likely downgrade the U.S. credit rating if no deal is reached before the end of the year, and on Monday the company reiterated its stance.

"A scenario whereby action on the budget is delayed until sometime in 2013 appears increasingly likely; for example, via a temporary extension of most measures except the increase in payroll tax," Moody's officials said.

"Such deferment, if not accompanied by an apparent commitment to achieving agreement and a credible timetable for implementing the necessary reforms to preserve sovereign creditworthiness, would be inconsistent with maintaining a AAA rating," they warned.

Fiscal Cliff Bickering Must End

Due to the higher taxes and automatic cuts that come with the fiscal cliff, corporations already are starting to lay off workers. The independent Tax Policy Center estimates that taxes will increase almost $3,500 per household as a result of the fiscal cliff.

It remains to be seen whether the fiscal cliff will be resolved before the year is up, but even if that happens the U.S. could still have its rating lowered by Moody's due to the political stalemate and partisanship that has gone on the past two years.

Immediately after the election all focus has shifted towards the fiscal cliff and whether or not Congress and the president can work together.

House Speaker John Boehner, R-OH, has been very vocal after the election, calling for compromise and insisting that Republicans can accept more revenue.

However, many are wondering if that is just a post-election piecemeal offering and if his true feelings were voiced before the election.

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