Fitch lowers U.S. outlook after supercommittee failure

The failure of the congressional supercommittee to agree on a way to reduce the deficit has led a ratings agency to downgrade its outlook on U.S. debt.

While affirming the top notch AAA rating for long-term treasuries, Fitch Ratings has revised its outlook on U.S. debt to negative.

David Riley, head of Sovereign Ratings at Fitch, said in an interview a negative outlook leads to a downgrade about 60 percent of the time. But he said that decision likely would not happen before late 2013.

"We didn't expect that the committee would be able to resolve the budget problem in one single go," he said. "But we had believed it was possible for the committee to provide a platform for developing a consensus on how to reduce the deficit."

"Tough decisions are going to have to be made" on entitlement spending and taxes, he said. The supercommittee failed to find consensus on both.

As part of the August deal to raise the debt ceiling, the 12-member bipartisan committee was tasked with reducing the deficit by $1.2 trillion. Its failure will result in automatic cuts in domestic and defense starting in 2013.

"The whole emphasis on trying to bring the budget deficit down now is on discretionary spending," he said. "We don't think ultimately that is credible."

Fitch projects 2012 to be a tough year for the U.S. economy, with growth at a modest 1.6 percent and continuing high unemployment. But the agency expects the recovery to gain momentum in 2013 and projected growth will increase to 2.6 percent.

The agency estimates federal debt will exceed 90 percent of GDP by the end of the decade, and if state and local debts are included, total government debt will exceed 110 percent of GDP in that timeframe.

"There clearly is a consensus that the current situation is not sustainable," Riley said.

He said they expect little action on deficit reduction before the elections next fall.

"Elections sometimes are a good way of focusing the mind and highlighting the tough choices that have to be made," Riley said. "We think there is a reasonable chance that the election and the new administration and congress that comes into office will have the mandate to take those tough decisions."

[realist51]

plain and simple go back to the tax rates under J.F.K. in the sixties we were the leading world power no debt no deficit and unemployment at and average of 4.7% passed and fully funded medicare fully funded S.S. fought two wars ( Vietnam and the cold war) Sent men to the moon had the peace corps and were not a debtor nation. Bring the rates back up reinstall glass/stegal and rebuild the nations infrastructure. This in its self would cost a trillion over ten years. tax money that would be returned to Americans in the form of jobs and a better nation. American business's would also profit as the rebuild should only be done with resources from America. Wake up! we help ourselves by helping ourselves.

[snewsom2997]

And half the population was not participating in the global economy, there are more people chasing after the same piece of pie, and they don't care what country you are from, or how much you would like to get paid for a particular job, they don't care what labor and safety laws we have, they would rather have something than nothing, and Americans want something and then some.

[snewsom2997]

We have reached the point of no return, short of the US winning the global version of the lottery with some great new invention, that is thought up here, produced here, and exported abroad, the only way we will pay back the money we owe is with dollars that are worth less, and that is assuming we get to a balanced budget, if we don't have some semblance of a balanced budget the dollars we pay back the debt with will be worth far far less.

[parisdakar]

"Point of no return" - bingo. There's no realistic way anymore that our government can even cut back to a balanced budget, let alone reduce the overall federal debt. I don't see how we can avoid a crisis. I think next year, around the election it'll happen. Any bets?

[skeezix06]

Maybe its time to start ignoring Fitch and other credit organizations, stop giving money to the super-wealthy, and start working on creating goals to benefit average, run of the mill Americans. I saw elsewhere that 50% of Americans are worried about being able to afford Christmas. 1/4 of our children are food insecure. I don't know how many children are homeless but whatever the actual statistics, it is too many. We're talking about destroying what remains of the safety net and returning our elderly to penury. Just because the media is afraid to report the full scope of what's going on in this country doesn't mean it isn't happening.

[focusonjobs1]

"Tough decisions are going to have to be made" on entitlement spending and TAXES, he said. The supercommittee failed to find consensus on both.
The whole emphasis on trying to bring the budget deficit down now is on discretionary spending," he said. "We don't think ultimately that is credible."
I don't know why these agencies don't spell it out for those who don't or won't get it.....you can't get to where we need to by cutting discretionary spending alone!!! REVENUE must be on the table.

[DebbieSmith1959]

As shown in this article, it is becoming less and less likely that America will ever be able to balance its budget, particularly if interest rates should rise to historical norms:

http://viableopposition.blogspot.com/2011/11/united-states-debt-interest-scenarios.html

Should interest rates rise to the average level of the past decade, interest on the debt would reach $700 billion, consuming 70 percent of individual income tax revenue.