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Fitch May Downgrade US Over Debt Worries

Author : John Schofield   Top Author

Submitted : 2013-01-17    Word Count : 10    Popularity:   Not Rated

Tags:   Dow Jones, Dollar index, Gold, Brent Oil, ASX, Fiscal cliff

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Fitch May Downgrade US Over Debt Worries:

On Tuesday, Fitch ratings Ltd, on its review of US recent economical policies, said that as congress has failed to increase the statutory borrowing limit of the federal government, it is very likely that it would prompt a degradation of the US governments credit rating. The reviewers of Fitch ratings limited also suggested that in such situation, congress should go on with the debt ceiling all together.

In their statement on Tuesday, Fitch ratings limited disagreed with some republicans who are assuming that the federal government will be able to prioritize the payments of government loans & their interests with the utilization of incoming tax receipts.

Similarly military pay & services of social security will be prioritized with such tax receipts by the treasury department of USA government. Few days ago, treasury department also had same kind of opinion like Fitch. They also warned that to minimize the recent turmoil that rose in USA recently, steps like breaching of debt ceiling will not be enough.

According to the words of Fitch- It is not assured that the Treasury would or legally could prioritize debt service over its myriad of other obligations, including Social Security payments, tax rebates and payments to contractors and employees. Arrears on such obligations would not constitute a default event from a sovereign rating perspective but very likely prompt a downgrade even as debt obligations continued to be met,

After the last standoff on the debt limit of federal government of USA, a larger credit agency called Standard & Poors also degraded the debt rate of USA a notch in the month of august on 2011.

They said that- our view that the effectiveness, stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned.

Such downgrading status of S & P, two political parties at Washington seems to have a divided standout. Where the republicans are saying that such position has raised by president Obamas denying to make cuts in the spending to get control over the federal deficit, the democrats are saying that this are only reflections of political paralysis stemmed out from the intransigence of republicans.

With the warnings of Fitch, it is only seen that Fitch is also on the side of what president Obama has to say over the debt worries. President Obama has frequently expressed feelings that he has no intension to negotiate over the issue of debt ceiling. Even on Monday, he compared the step of republicans to refuse it to rise is like a hostage taken by a criminal.

According to the note of Fitch- the debt ceiling is an ineffective and potentially dangerous mechanism for enforcing fiscal discipline. It does not prevent tax and spending decisions that will incur debt issuance in excess of the ceiling while the sanction of not raising the ceiling risks a sovereign default and renders such a threat incredible.

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