Impact of S&P’s Announcement on Debt Ceiling Debate
Raven Clabough|New American
Despite the White House’s contentions that the United States economy is improving, Standard & Poor’s recent decision to change its outlook on U.S. fiscal health over the next two years from “stable” to “negative” tells a different tale. Besides the obvious impact such an announcement would have on the economic recovery, as well as the stock market, it also appears to play a role in the current debate over a potential raise of the debt ceiling.
Debate over the debt ceiling was already intense prior to the innate pessimism of Monday’s announcement from S&P and what it implies about Washington’s ability to solve the debt crisis. Now the S&P declaration seems to confirm what fiscal conservatives have asserted all along, and has helped those conservatives affirm their position on the deficit and the debt ceiling.
“Serious reforms are needed to ensure America’s fiscal health,” said House Majority Leader Eric Cantor, who called S&P’s decision a “wake-up call to those in Washington asking Congress to blindly increase the debt limit.”
The proximity of S&P’s decision to the time in which America is expected to reach the debt ceiling expectedly impacts the debate over the debt ceiling. Fox News reports:
Republicans have called for attaching spending reductions to any increase in the debt limit, which nearly has been reached at over $14 trillion, but the White House has warned that failing to increase the limit in the coming months could be ruinous for federal finances and the economy as a whole, because the nation’s creditors may lose confidence in the United States’ ability to pay its debts.
Even as the stock markets tumbled in light of S&P’s announcement on Monday, White House Press Secretary Jay Carney asserts that the political process will prove the agency wrong. Likewise, the Obama administration declared S&P’s decision to be short-sighted. Mary Miller, assistant secretary for financial markets at the Treasury Department, said, “Both political parties now agree that it is time to begin bringing down deficits as a share of GDP. We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation.”