The head of a top credit rating agency has said that some of the deficit-cutting plans being considered by Congress could bring the US debt burden down to a level that would allow the country to keep its triple-A credit rating.
Standard & Poor's President Deven Sharma told a congressional panel today that previous reports indicating that Congress would need to achieve $4 trillion in deficit cuts over 10 years to retain the country's top credit rating were inaccurate.
Sharma refused to be specific over how much deficit cutting would be needed to win S&P's approval. But he said some of the plans being discussed were in the range of what the credit agency believes would be necessary for a credible attack on the country's deficit problems.
The three major credit rating agencies - Moody's, Standard & Poor's and Fitch Ratings - have all issued warnings that they may downgrade the US government's current triple-A credit rating. Such a downgrade could send shockwaves through the financial system.
The federal government has had the highest credit rating for nearly a century, a rating that has allowed the US to get the lowest interest rates possible to finance Treasury debt.
The major credit rating agencies have warned that they could lower their top ratings on Treasury debt unless Congress and the Obama administration come up with a credible plan to reduce future deficits as part of the effort to raise the current $14.3 trillion borrowing limit. Treasury Secretary Timothy Geithner has said he will run out of maneuvering room to keep below the current limit after August 2.
Sharma and Michael Rowan, managing director of Moody's Investors Service, both appeared before the oversight subcommittee of the House Financial Services Committee where they faced questions about the warnings they have issued on the US credit rating.
Sharma told the panel that 'there has to be a credible plan' to reduce the US debt burden. He said that some of the plans that have been put forward would qualify as credible, but he said the agency's credit rating analysts would not make a decision on a possible downgrade until all the details of a final plan were known.
Rowan said while Moody's had issued a warning that there was a risk the agency would downgrade the US debt, the agency was still reviewing the efforts being made by Washington policymakers to deal with the problem.
US fears send gold to a fresh high
The price of gold hit a record high above $1,625 an ounce in London this morning, as investors parked their cash in the precious metal in the face of heightened concerns over a potential US default.
The price of gold struck $1,625.70 an ounce on the London Bullion Market, beating the previous record of $1,624.07 set on Monday.
The US remains on course for a potential debt default with grave consequences, with common ground still elusive on a deal that would let Washington borrow the cash it needs to pay its bills.
The White House and divided Republicans clashed yesterday but failed to break an impasse that could see the world's richest nation default on its debt, with potentially ruinous global results.
Investors are extremely worried about the risk of an August 2 deadline passing without a breakthrough.
In recent weeks, gold has blazed a record-breaking trail as investors have also sought shelter from the intensifying euro zone debt crisis.
