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U.S. credit rating downgrade

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Fitch's Warning on U.S. Credit Rating Downgrade

By , Contributing Writer, Money Morning -

Fitch Ratings agency said today (Tuesday) that if policymakers on Capitol Hill drag their heels in raising the country's debt ceiling, Fitch could issue a U.S. credit rating downgrade.

David Riley, managing director of the leading credit ratings firm said Tuesday that he is concerned about an impending credit crisis and cautioned that failure to raise the debt ceiling by March 1 will activate a formal review of the nation's coveted AAA rating.

"The pressure on the U.S. rating, if anything, is increasing," Riley said during a conference in London. "We thought the 2011 crisis was a one-off event... if we have a repeat we will place the U.S. rating under review."

Fitch presently maintains a "negative" outlook on the United States, and plans to decide this year if a downgrade is warranted.

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Why a U.S. Credit Rating Downgrade is On the Way

By , Money Morning -

It's been 18 months since Standard & Poor's lowered the U.S. credit rating, and now Moody's Corp. (NYSE: MCO) and Fitch Ratings look ready to do the same.

That's because even after the fiscal cliff deal, the country's biggest financial problems still remain: the debt ceiling debate, the uncertainty over the delayed sequester cuts and the failure to address the escalating long-term national debt.

And there's little confidence in Congress to reach an effective long-term deficit-reduction agreement by the February deadline.

"It's a fait accompli, actually," Money Morning Chief Investment Strategist Keith Fitz-Gerald said of a credit rating downgrade. "We are the most indebted nation on the face of the planet, spending has ground to a halt, lending is not happening."



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

By , Contributing Writer, Money Morning -

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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Stock Market Today: U.S. Credit Rating At Risk Again

By , Money Morning -

The major headlines in the stock market today (Tuesday) include Moody's warning it might lower America's AAA rating, the trade deficit and a financial shakeup:

  • U.S. Credit Rating at Risk- In a statement released Monday, ratings agency Moody's said the United States is in danger of losing its AAA credit rating if Congress cannot come up with a solid plan to lower the debt-to-GDP ratio. "If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable," Moody's said in an e-mailed statement. "If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to Aa1."

    Currently Moody's rates the U.S. AAA credit rating with a negative outlook. Standard & Poor's last year downgraded the U.S. to AA+ which is the equivalent to Moody's Aa1. Both agencies cite the political bickering in Congress and inability to deal with fiscal situations as the main reasons for the downgrades. S&P has mentioned that those risks could lead to another downgrade. When President Obama updated his federal budget in August the debt-to-GDP ratio was projected to be 75% by 2022, currently it is just over 1.04%. If lawmakers decide to go off the fiscal cliff as a debt reduction measure Moody's said it will maintain its current rating and negative outlook and then wait to see results of the fiscal cliff before deciding to return to a stable outlook.

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China Wastes No Time in U.S. Credit Rating Downgrade

By , Associate Editor, Money Morning -

While Standard & Poor's mulls over a U.S. credit rating downgrade, China's Dagong Global Credit Rating Co. wasted no time cutting its U.S. debt outlook, signaling Asia's lack of faith in the declining U.S. dollar.

Dagong yesterday (Wednesday) cut its U.S. credit rating to A from A+ with a "negative" outlook. The agency said the U.S. debt deal failed to correct the country's budget issues, and the $2.4 trillion debt-ceiling increase will further erode the country's ability to reduce debt in coming years.

Two U.S. credit rating agencies, Moody's Investors Service (NYSE: MCO) and Fitch Ratings Inc., affirmed the country's top-tier AAA credit rating Tuesday - although both did issue a "negative" outlook, meaning the country could face a downgrade in a year or two.

But China acted much more swiftly. The U.S. credit rating downgrade puts the country several notches below the agency's top rating, on the same creditworthiness level as Spain, Estonia and South Africa.

The move underscores how foreign lenders to the United States have become increasingly reluctant to maintain their current levels of exposure to U.S. bonds.

Foreign leaders like People's Bank of China Governor Zhou Xiaochuan and Russian Prime Minister Vladimir Putin have harshly criticized the United States for failing to control its finances.

Putin said Monday that the United States was "leeching on the world economy," and questioned the dollar's status as the world's reserve currency.

"They are living like parasites off the global economy and their monopoly of the U.S. dollar," said Putin. "If over there (in America) there is a systemic malfunction, this will affect everyone. Countries like Russia and China hold a significant part of their reserves in American securities ... There should be other reserve currencies."



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Moody's Warning Edges U.S. Credit Rating Closer to Downgrade

By , Associate Editor, Money Morning • @DavidGZeiler -

With time running out on a deal to raise the U.S. debt ceiling, Moody's Investors Service turned up the heat by warning Washington's bickering politicians that any missed debt payments will result in a credit rating downgrade.

Such a downgrade would have economically catastrophic consequences, roiling stock markets worldwide, sharply increasing borrowing costs for the U.S. government as well as businesses, and derailing an already-anemic economic recovery.

Indeed, Moody's announcement triggered a 1.1% drop in the dollar on Wednesday - its biggest one-day drop in six months.

Most observers have assumed that Congress and U.S. President Barack Obama would eventually reach a deal on raising the $14.3 trillion debt ceiling and the growing federal deficits before the Aug. 2 deadline - necessary to avoid losing the ability to borrow and a possible default on the federal debt.

But with little progress having been made on a deal and the deadline less than three weeks away, concern is growing that ideological stubbornness and posturing for the 2012 elections had led to an impasse.

"They are worried they are having these ideological arguments while Rome burns," Carl Kaufman, portfolio manager at Osterweis Capital Management, told Reuters.



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