Tags: Credit | ratings | S&P | Congress

Credit Ratings Agencies More Sanguine About Debt Limit This Year

Friday, 13 Sep 2013 08:28 AM

By Dan Weil

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As Congress and the White House fought over raising the debt ceiling in the summer of 2011, credit ratings agencies warned that a broad deficit reduction deal was necessary for the government to retain its triple-A credit rating. And Standard & Poor's ended up cutting its rating.

But as Congress prepares to deal with the budget and another increase in the debt limit in the coming weeks, the credit rating agencies are a lot more congenial, The Hill reports.

Their changed attitude stems from a shrinking budget deficit and perhaps a desire to avoid another fight with Congress, according to the news service.

Editor’s Note:
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The Congressional Budget Office forecasts a deficit of $670 billion for the year ending Sept. 30, a sharp contraction from the $1.1 trillion deficit for fiscal 2012.

"We expect the continuing [budget] resolution to pass, and we expect the debt ceiling to be raised, albeit not necessarily smoothly," says Marie Cavanaugh, managing director of S&P's sovereign ratings group, according to The Hill.

"The kind of extreme brinkmanship one saw in 2011 didn't serve the economy. It probably didn't serve anyone. There's major incentive in our opinion to reach an agreement."

Steven Hess, senior vice president at Moody's, agrees. "From a credit rating perspective, we are not too concerned about either [government funding or the debt ceiling]," he tells The Hill. "We don't foresee that these short-term issues are likely to change that [stable] outlook."

The first downgrade from S&P didn't seem to have much of an impact on the U.S. economy or Treasurys. In fact, investors still rushed to Treasury bonds as a safe haven.

"We did get downgraded, and the sky didn't fall. The sun came up the next morning, and rates did not go through the roof," says Brian Gardner, senior vice president for Washington research at Keefe, Bruyette and Woods. "We're kind of left with the question of, 'OK, does it really matter?'"

The political repercussions of a failure to agree on a budget and the debt ceiling may help Congress to succeed, experts say. "The parties are acutely concerned about how much blame they're going to face if they don't come to the table," Sarah Binder, a congressional expert at the Brookings Institution, tells McClatchy news.

"The more blame you face, the less negotiating power you have."

Editor’s Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See If You Qualify)

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