Credit-rating agency threatens downgrade if Obama spending isn’t curbed

Neil Munro White House Correspondent
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President Barack Obama’s ambitious spending plans will lead to another downgrade of the United States’ credit rating, according to a Jan. 15 warning from Fitch Ratings — a top-ranked credit-rating agency.

Without “agreed and credible medium-term deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of U.S. public finances, the current Negative Outlook on the ‘AAA’ rating is likely to be resolved with a downgrade,” read an early morning announcement by the London-based firm.

The downgrade is expected “even if another debt ceiling crisis is averted” by a debt-ceiling deal before March, said the firm, which is one of the three major international credit-rating firms.

In August 2011, Standard & Poor’s downgraded the U.S. credit ratings from AAA, to AA-, after deficit-reduction talks failed at the last moment when Obama suddenly asked for an additional tax increase of $400 billion over 10 years. (RELATED VIDEO: Mark Levin lays into “arrogant as hell imperial president”)

The government’s debt is $16.4 trillion and is slated to reach almost $20 trillion by 2017, according to financial analysis by the non-partisan Congressional Budget Office. That’s up from $11 trillion when Obama was inaugurated, and it averages out to roughly $125,000 for each working-age American.

The stark warning of another downgrade was largely ignored by Washington-based political reporters, even though a downgrade could drive up the interest payments on the nation’s fast growing debt, and force deep cuts in other spending programs.

Instead, most political reporters were focused on the administration’s pending rollout of its project to “reduce gun violence” with a new set of federal laws, regulations and spending programs.

The Jan. 15 midday press conference at the White House, for example, included numerous questions about guns, but none about the Fitch warning, and none about the pending clash over the federal government’s credit limit.

Several media outlets carried reports on Fitch’s warning, but most highlighted Fitch’s prominent call for the Congress to raise the debt limit to allow the federal government to spent roughly $1 trillion per year above tax revenues.

“Failure to raise the debt ceiling in a timely manner will prompt a formal review of the U.S. sovereign ratings,” the first paragraph of the Fitch announcement read.

The important warning of a downgrade if the U.S. can’t establish a “deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence,” was contained in the last paragraph of Fitch’s announcement.

The first debt-ceiling sentence was spotlighted by several media outlets that gave the GOP responsibility for the growing debt and the debt-ceiling impasse.

“A major credit agency is threatening to downgrade the U.S. debt rating unless Congress acts quickly to raise the debt ceiling,” Politico reported.

“Congress has to increase the country’s debt limit, which effectively rules how much debt the U.S. can have, by March 1 or face a potential default,” reported the Associated Press.

The debt-ceiling debate is stalled because Obama has announced he will not negotiate spending curbs or program reforms sought by the GOP majority in the House, and said that he wants any cut to be partially offset by increased taxes.

During a Jan. 15 press conference Obama continued this strategy, demanded more spending and berated the GOP for seeking curbs and reforms. (RELATED VIDEO: Hume: “Strikingly aggressive and partisan” Obama looking to deepen problems for GOP)

Budget cuts, he said, would “fundamentally change commitments that we’ve made to make sure that seniors don’t go into poverty, or that children who are disabled are properly cared for.” (RELATED: Obama says old folks, sick, troops will face chopping block if GOP doesn’t OK bigger debt)

By not raising the debt-ceiling, Republicans were putting an economic “gun at the head of the American people … [and] threaten to wreck the entire economy,” he said. (RELATED: Obama in final first-term press conference: Republicans are ‘suspicious’ about feeding poor children)

The suggestion that the GOP would let children starve “is essentially a libel,” commentator Charles Krauthammer said on Fox. “Then [Obama] said, ‘Oh yes, but I love hanging out at congressional picnic with these people who want to starve America’s children,” he added.

Fitch’s statement included an extended criticism of the debt-ceiling, which is part of the constitutional provisions that given Congress — not the White House — control over federal budgets.

“In Fitch’s opinion, the debt ceiling is an ineffective and potentially dangerous mechanism for enforcing fiscal discipline,” the Fitch report read.

“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,” it charged.

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