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Is a U.S. Credit Rating Downgrade a Sure Thing?

Fitch Ratings Inc. cautioned today (Wednesday) that it may downgrade the U.S. credit rating – currently AAA, the highest ranking – if Congress doesn't reach a fiscal cliff deal.

The ratings agency said if negotiations on both the fiscal cliff and the debt ceiling extend into 2013, Fitch will review the credit rating which may lead "to a negative rating action."

"Failure to avoid the fiscal cliff…would exacerbate rather than diminish the uncertainty over fiscal policy, and tip the U.S. into an avoidable and unnecessary recession," Fitch wrote in its 2013 global outlook. "That could erode medium-term growth potential and financial stability. In such a scenario, there would be an increased likelihood that the U.S. would lose its AAA status."

Fitch's warning is not merely a threat, and it isn't the only rating downgrade facing the United States.

Moody's Corp. (NYSE: MCO), which also currently has a AAA rating in place and maintains a negative outlook, advised in September that it was prepared to strip the country of its stellar rating if lawmakers don't come up with a long-term debt reduction plan.

Standard & Poor's has been even less lenient.

It trimmed its U.S. credit rating one notch in 2011 to AA+, alluding to the political stalemates that thwarted an agreement on raising the debt ceiling. The downgrade, a first in U.S. history, was harshly criticized, and stunned Washington.

S&P lectured earlier this year that an additional downgrade was likely sans a debt deal.

Joining S&P in stripping the U.S. of its desirable credit rating was Egan Jones, a much smaller but still well-known rival among the big three credit rating agencies. This September, it slashed its rating to AA- from AA.

A U.S. credit rating downgrade is just one important consideration in the debt ceiling debate.

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What the Fiscal Cliff Deal Could Do to You

Depending on the deal Congress makes for the fiscal cliff, middle-class Americans could face a total average tax burden of nearly 50%.

Middle-class Americans already pay an average of 43.12% in taxes, according to the non-partisan Tax Foundation.

Money Morning Chief Investment Strategist Keith Fitz-Gerald detailed the possible increase in the tax tab, citing data from FOX Business Network's expert on consumer and personal finance, Gerri Willis.

Absent a fiscal cliff deal, the mean middle class federal tax rate would climb from 25% to 28%, as Bush-era tax cuts expire in 2013. Payroll taxes would rise from 13.3% to 15.3%.

"Keep in mind that doesn't include state income tax hikes, city or county taxes, many of which are on the rise no matter where you live, thanks to decades of poor fiscal management," Fitz-Gerald said.

Add in state taxes, which average 4.82%, and the middle-class tax burden would average a whopping 48%.

As Fitz-Gerald put it, the possible tax increases amount to "an assault on the middle class."

The Most Painful Fiscal Cliff Hit to the Middle Class



The biggest tax increase threatening individuals for the 2012 tax year is a hike in the alternative minimum tax.

Read More…

Fiscal Cliff Deal: Plan B or Plan CYA?

Markets were higher in Europe and the United States yesterday (Tuesday) as progress was made on a fiscal cliff deal as well as on resolving debt ceiling issues before year end.

But then Republican House Speaker John Boehner rattled everyone's cages by proposing his "Plan B," which would make permanent the Bush tax cuts for all taxpayers with annual incomes under $1 million.

"Right now we need to do something to get the president's attention," Rep. Frank Lucas, R-OK, said in an interview with Bloomberg News. Boehner's approach "might just help," he said.

Fiscal Cliff Deal: What is Plan B?

The Washington Post reported that Plan B legislation was still being drafted late Tuesday but, in addition to making the Bush tax rates permanent for incomes under $1 million, Plan B would create a permanent alternative minimum tax patch and maintain the 35% inheritance tax on estates of more than $5 million.

Plan B does not address the automatic, across the board spending cuts that will go into effect if a fiscal cliff deal fails, nor does it address the looming debt ceiling.

"I believe it's important that we protect as many American taxpayers as we can," Boehner said Tuesday. "And our Plan B would protect American taxpayers who make a million dollars or less and have all of their current rates extended."

Plan B is intended to avoid tax hikes on the vast majority of Americans and to buy time to address spending cuts and other issues in January, following the holiday recess.

Boehner plans a House vote on his Plan B on Thursday.

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Washington

U.S. Debt Ceiling: Forget Fiscal Cliff with the Real Issue Still Ahead

The nation's attention has been captured by the bitter and so far unfruitful fiscal cliff negotiations between U.S. House Speaker John Boehner, R-OH, and U.S. President Barack Obama.

But this is a sideshow.

The real issue is Boehner's attempt to tie the U.S. debt ceiling to fiscal cliff deal making.

The United States is getting close to its borrowing limit. The U.S. debt ceiling must be increased if the United States government is to be able to borrow enough money to pay its bills.

As of Monday, Dec. 17, the U.S. government was about $63 billion shy of its borrowing limit, currently set at $16.394 trillion under the 2011 agreement that led to today's fiscal cliff negotiations. The government is likely to hit that limit by the end of this month.

Boehner has offered to extend the debt limit for a year in order to make a deal to avoid the fiscal cliff. But he wanted something huge in return.

"Any debt limit increase would require cuts and reforms of a greater amount," said Boehner spokesman Brendan Buck.

President Obama counter-offered asking for a deal that would raise the debt limit high enough so it would not be revisited until after the 2014 midterm elections. The GOP has yet to deliver a response.

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Stock Market Today

Stock Market Today: Biggest Winners and Losers

The stock market today rallied for a second session on hopes lawmakers in Washington will ink a fiscal cliff deal before year's end.

In afternoon trading Tuesday all three major index were sharply higher. The Dow Jones Industrial Average soared some 90 points by 2:30 p.m., the Standard & Poor's 500 Index climbed 11, and the Nasdaq jumped 33. That followed Monday's gains of 100.38 points, 16.78 points and 39.27 points, respectively.

With few economic releases scheduled for Tuesday, investors' focus was pinned on Washington. House Speaker John Boehner, R-OH, and U.S. President Barack Obama continued to haggle over a fiscal cliff deal, with the president making a counter offer late Monday.

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The Fiscal Cliff

Fiscal Cliff Deal: The President's Latest Counter Offer

Equity and commodity prices rallied in Europe and Asia while the U.S. dollar and Treasury bond prices fell as U.S. President Barack Obama and Republican House Speaker John Boehner have made progress on a fiscal cliff deal.

On Friday afternoon, Speaker Boehner called the White House with an offer to raise taxes on Americans earnings more than $1 million, altering his position on no tax increases for anyone.

With that concession in hand, the president devised a counteroffer, which was presented to the Republicans late Monday. The president's new proposal reduces tax increases from $1.6 trillion over ten years to $1.2 trillion, offset by $1.2 trillion in spending cuts.

But Republicans are questioning the president's math.

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Election in Japan: Will a New Government Revive Growth?

Following three-and-a-half years of government marked by scandal, incompetence and hesitation in the face of a natural disaster, voters in Sunday's election in Japan voted in a new party.

Japanese voters turned their backs on the Democratic Party of Japan (DPJ) and returned the Liberal Democratic Party (LDP) to power in a landslide victory.

The LDP, which ruled Japan continuously for more than 50 years, has been chastened by its time in opposition and returns to power with a renewed vigor and strengthened belief in its core values.

Sunday's election, which had been characterized as a referendum on the future of nuclear power in Japan, actually turned out to be a vote in favor of competence and experience in governing.

Voters handed the LDP/Komei coalition a veto-proof majority of 325 seats in the Lower House of the Diet.

Under Japan's parliamentary system, if a bill passed by the Lower House is rejected by the Upper House, it can be resubmitted to the Lower House and become law if approved by a two-thirds majority. That means even the most radical LDP policies can become law over the objections of the opposition.

That's a good thing because LDP president Shinzo Abe, who will be the next prime minister, has some pretty radical ideas for dealing with Japan's economic malaise.

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Fiscal Cliff Deal: Boehner Takes a Huge Step

U.S. House of Representatives Speaker John Boehner, lead negotiator for the Republicans, took the first step late Friday in making a fiscal cliff deal when he agreed to accept a tax hike for the wealthiest Americans (those making more than $1 million).

Boehner also agreed to a one-year increase to the debt ceiling.

In return, the GOP wants U.S. President Barack Obama to implement steep cuts to entitlement spending, including Social Security, Medicare and Medicaid.

"Boehner has now accepted the premise of higher rates. So now we're just arguing over details. I think it's a significant step," Greg Valliere, chief political strategist at Potomac Research Group told Reuters.

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Stocks to Buy Now: Bet on these Three Casino Stocks for 2013

Rather than being suckered by the glamour and neon lights at casinos, savvy investors looking for stocks to buy now are putting the odds on their side and betting on "the house."

That's because casino stocks are promising big returns for shareholders.

Plus, the gaming industry is still in the early stages of what should be a sustained recovery from the financial crisis that had lightened gamblers' wallets.

But identifying the best casino stocks to buy now involves more than a weekend jaunt to Vegas.

Due diligence on gaming stocks now requires a look at gambling's biggest hotspot – Macau, a former Portuguese colony that is now a special administrative region under Chinese rule.

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