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US Facing Another Downgrade

John on October 24, 2011 at 9:03 am

From Reuters:

The United States will likely suffer the loss of its triple-A credit rating from another major rating agency by the end of this year due to concerns over the deficit, Bank of America Merrill Lynch forecasts.

The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit, the bank said in a research note published on Friday.

A second downgrade — either from Moody’s or Fitch — would follow Standard & Poor’s downgrade in August on concerns about the government’s budget deficit and rising debt burden. A second loss of the country’s top credit rating would be an additional blow to the sluggish U.S. economy, Merrill said.

Make no mistake this is about the long term outlook, i.e. getting control of debt and entitlements:

“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan” to cut the deficit, Merrill’s North American economist, Ethan Harris, wrote in the report.

“Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes,” he added.

Last time this happened there was enough weasel language in the downgrade that people like Rachel Maddow were able to blame it on Republican tactics. That sort of worked since there had been a major battle over raising the debt ceiling and Republicans did force the crisis in order to get some cuts.

No doubt the left will make the same claim this time, but with the long term outcome in the hands of a secret super-committee it’s not clear how they’ll be able to sell it as the GOP’s fault. Why can’t the Dems just agree to something for the sake of the country? I expect Chuck Schumer and his messaging team are working on an answer for this even now. Expect leaks to the NY Times indicating that all of the problems are the result of GOP intransigence. What other play do they have?

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