Business & Lobbying

Credit rater expects US to avoid default

The president of Standard & Poor’s said Wednesday that he does not expect the United States to default while reiterating that the country’s long-term debt situation is the biggest threat to its credit rating.

“The more important issue is really the long-term growth rate of the debt … that is the more important issue at hand,” Deven Sharma said in testimony before the House Financial Services Committee.

{mosads}A Wednesday subcommittee hearing on credit rating agencies was ostensibly held to discuss how they are operating after passage of the financial reform law, but the debate took on additional import and attention now that the raters have emerged as a referee in the debt-limit fight.

Lawmakers pressed raters and regulators on the implications of a potential downgrade to the nation’s AAA credit rating — a very real threat, as raters have called for a credible debt-reduction plan in order to maintain it. The members asked whether any of the deficit plans on the table would do enough to protect that rating.

Rep. Brad Miller (D-N.C.) pressed regulators on the impact of a downgrade. David Wilson, with the Office of the Comptroller of the Currency, said that the impact would be negative, but that the extent of the fallout is hard to predict.

“We believe there will be an effect, but the size of the effect is hard to say,” Wilson said. “It’s hard to measure, but I think you’re right to worry.”

Sharma took pains to avoid taking sides in the debt-limit fight, saying instead that analysts were waiting to see the final deal before determining whether it is enough to protect the AAA status. The firm recently warned that the nation’s credit rating had a 50 percent chance of being downgraded, and that a major debt-reduction plan would be needed to salvage it.

He added that reports that S&P was privately telling investors it favored the plan put forward by Senate Majority Leader Harry Reid (D-Nev.) were inaccurate.

“We were misquoted. We do not comment on any specific plan or political choice,” he said.

In fact, it was not the job of the raters to help nudge policy in any particular direction, he said. Rather, raters’ responsibility is to investors of debt, not its issuers.

“That’s what we are doing today, for the benefit of investors,” he said. “We’re doing the same thing that we do in any part of the world.”

The potential downgrade of the United States has been a hot topic on Capitol Hill and in financial markets in recent days. Some worry a downgrade would roil financial markets and lead to spiking interest costs across the board, as the increased costs of borrowing under a AA rating would mean higher rates for other types of borrowing, such as mortgages.

Fellow credit rater FitchRatings worked to downplay those concerns Wednesday. It issued a report that argued that even if Treasury bonds were downgraded to AA, the securities would retain their place as the gold standard for secure investments due to the broader economics of the United States, as well as the fact that no other sovereign debt really compares.

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