'Fiscal Cliff' Deal Won’t Help US Rating

Even a compromise by Congress to avert a ‘fiscal cliff’ won’t change the troubled credit outlook of the U.S. economy, which continues to face a huge debt burden, says Sean Egan, managing director of Egan-Jones, the ratings firm that has cut America’s sovereign debt rating twice this year.
"The key measure on sovereign credit quality is debt-to-GDP, in the case of the U.S., it’s risen rather dramatically, from four years ago at 75 percent debt-to-GDP, to currently over 104 percent,” Egan told CNBC on Tuesday.

“The problem in the U.S. is that the debt has grown whereas the GDP has not grown. (While) the U.S. has had the benefit of being the major reserve currency, that only takes it so far,” he added.

Egan-Jones first cut U.S. credit rating to AA from AA+ in April, citing concerns over a lack of progress in cutting federal debt; and again in September, to AA-, triggered by concerns the quantitative easing from the Federal Reserve would hurt the country's credit quality.

The independent credit-research firm has assigned U.S. the lowest sovereign debt rating among the four major ratings agencies. Moody's Investors Service [MCO  46.60    -1.42  (-2.96%)   ] rates the United States Aaa, while Fitch has assigned a AAA rating, and Standard & Poor's (S&P) a AA-plus.

The “fiscal cliff” is the term used to describe a series of tax hikes and spending cuts that will take place in January if Congress and the White House fail to reach deficit-reduction targets.

Concerns over this fiscal precipice have delayed investment and hiring decisions by companies, and if not avoided, could push the U.S. economy into a recession, analysts have warned.  

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