01/13/10 Stockholm, Sweden – Credit rating agency Fitch Ratings is indicating that it sees the US on the wrong path when it comes to spending and taxes. From The Telegraph, here’s a quote from the head of its sovereign ratings division, Brian Coulton:
“‘Difficult decisions will have to be made regarding spending and tax to underpin market confidence in the long-run sustainability of public finances. In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will approach levels by the latter half of the decade that will bring pressure to bear on the US’s “AAA” status’, he said.”
The main problems Coulton highlights are the budget deficit, due to the costs of debt service, and the heavy reliance on unstable foreign debt holders that, in the event of an “interest rate shock,” could choose to abruptly liquidate debt instruments more easily than would similar domestic investors.
As the article points out, the US may still provide the world’s reserve currency but, as an Empire of Debt with flagging global economic stature, it has to now play by the same rules as other countries in order to avoid a credit downgrade.
Read the full details in The Telegraph’s coverage of how Fitch is warning the US to cut spending in order to save its AAA rating.
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
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