Deficit dithering: "complacency"

S&P Cuts U.S. Ratings Outlook to Negative

Excerpt:

Standard & Poor's cut its outlook on the U.S. to negative, increasing the likelihood of a downgrade from its triple-A credit rating, as the U.S. continues to struggle with large budget deficits and rising government debt.

"More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," S&P credit analyst Nikola G. Swann said. The ratings company believes the chances that the U.S.'s credit rating will be lowered within two years are at one in three, or higher, the analyst said.

The news sent stocks sharply lower and pushed bond yields higher, boosting the yen as investors moved funds into currencies seen as havens in times of trouble. "The markets have been shaken out of their complacency," said Lena Komileva, a currencies analyst at U.S. bank Brown Brothers Harriman in London. "People are being forced to face reality."

S&P said Monday it sees a risk that policy makers might fail to agree on how to address budgetary challenges by 2013, leaving the U.S. fiscally weaker than other triple-A-rated countries. It also said, though, that the U.S.'s flexible, highly diversified economy will help to support the rating, while a consistent global preference for the dollar gives the U.S. "unique external liquidity."

Comment: Congress arguing about 38 Billion in cuts two weeks ago would be like my arguing with my wife about cutting a nickle from our grocery bill.