Wall Street rating agencies are starting to sound warnings again about the possibility of further downgrades of the once-perfect U.S. credit rating as a critical year-end deadline for addressing the nation’s mounting debt nears.
Standard & Poor’s Corp. this week said that the outlook for the U.S. rating is negative and suggested that it will downgrade the U.S. again if the political impasse over tax and entitlement reform extends into next year. The agency shook world markets last summer by downgrading the U.S. for the first time to AA+ from AAA.
S&P cites extreme politics as the biggest problem, and one that is getting worse as the presidential race and fight for control of Congress heats up. The agency doesn’t expect the political environment to improve after the elections – no matter who wins. At that point, Congress will have only two months to avert a massive fiscal train wreck from hitting the economy with huge tax increases and spending cuts at year’s end.
“Political polarization has increased,” with serious consequences for the nation’s ability to manage its growing debts, said S&P analyst Nikola G. Swann. He noted that neither party has been able to muster broad bipartisan support for any major measure to address the deficit and prevent the debt from eventually getting out of control.