How an outlook downgrade affects future borrowing
STEVE CHIOTAKIS: Standard & Poor’s says it’s worried about the nation’s financial health. The S&P did reaffirm the U.S. debt rating at AAA. But the ratings agency also said today there’s a chance the country could be buried under insurmountable debt. A top Obama administration official said the move underestimates the resolve of those who want to fix the current budget problems, i.e. the president and the Congress.
Joe Engelhard is financial sector analyst over at Capital Alpha Partners in Washington. And he’s with us now good morning.
JOE ENGLEHARD: Good morning Steve. How are you?
CHIOTAKIS: I’m doing well. So what does it mean that the outlook on U.S. debt’s been moved — has been revised to negative?
ENGLEHARD: I think what got a lot of people’s attention when S&P did this the fact that they changed their outlook — meaning they see an increased chance of having to change their rating to what they said was a one-third chance in their views that the U.S. would not be able to resolve their political differences and come up with an acceptable plan to get down their annual deficits.
CHIOTAKIS: Do you think this is a motivator for the Congress and for the President to get together and really get some budget solutions done?
ENGLEHARD: I think it’s a little bit of a wake up call. I would also say that I think that even before this, most of the senior policy makers on both sides are very well aware that there needs to be a — at least a medium-term and definitely a long-term solution to get the U.S. back down to its tradition, at the GDP levels. I’m in the same camp thinking that we will be able to resolve this problem in the enxt two to three years. But at least S&P thinks there’s a 30 percent chance it won’t.
CHIOTAKIS: If we have to, and this means, down the road we may have to pay more to borrow, how’s that going to affect a recovery? Some sort of economic recovery here in this country?
ENGLEHARD: I think that’s a real threat. There’s no question that whether international markets lost confidence in the U.S.’s ability to pay its debt. Or in my mind we have much greater uncertainty about what the real risks are going forward, we may end up paying more on our debt either way.
CHIOTAKIS: Joe Englehard, with Capital Alpha Partners in Washington. Joe thanks.
ENGLEHARD: Thank you Steve.
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