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Financial Planning > College Planning > Student Loan Debt

White House, Treasury Criticize S&P's Negative Outlook

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In a diplomatic double-step on Monday, Treasury Assistant Secretary Mary Miller welcomed S&P’s affirmation of the United States’ AAA debt rating while at the same time criticizing the rating’s service for downgrading its economic outlook to negative.

“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,” Miller said in a statement. “As the President said last week, addressing the current fiscal situation is well within our capacity as a country.  He has initiated a bipartisan process that will allow us to make progress on a balanced approach to restoring fiscal responsibility. ”

The Treasury Department was joined in its criticism by the White House. Austan Goolsbee, President Barack Obama’s chief economic advisor, rejected the negative outlook as a “political judgment” that he said doesn’t deserve “too much weight.”

Austan Goolsbee“They are saying their political judgment is that over the next two years they didn’t see a political agreement to reduce long-term deficits,” Goolsbee (left), chairman of the Council of Economic Advisers, told Bloomberg Television. “I don’t think that the S&P’s political judgment is right.”

Goolsbee said Obama and Republican congressional leaders are “pretty close” in the deficit reduction targets they have announced. Each has set a target of $4 trillion, though House Republicans have a timeline of 10 years and the White House proposal would cumulatively cut that amount over 12 years.

“They agree that we got to take some significant actions” that “promote fiscal responsibility,” Goolsbee said.

Bloomberg also pointed to an earlier interview with MSNBC, in which Goolsbee said: “I believe we can get to some long-term deficit reduction that would address these issues that S&P’s discussing.”

Goolsbee said the assessment “wasn’t a political probability that even the other ratings agencies necessarily agree with.”

Reaction from the bond market was mixed, with a sell-off occurring at the beginning of the trading day, buy buying activity resumed soon after.

“It’s not exactly news,” says Jack Montgomery, director of fixed income with HighMark Capital Management. “This has been building for some time. From a day-to-day behavioral standpoint, not much will change [in the bond market]. Are people going to stop buying our Treasuries? No, and China sure hasn’t.”

Montgomery says S&P’s move means there is a one-in-three chance that the company will downgrade the U.S. debt rating within the next two years.

“If we continue on the same spending path, in 30 years 100% of our tax revenue will go to servicing the country’s debt,” he says. “That’s not going to happen, and this move means S&P expects significant cuts to be put in place before the next election.”

Moody’s Investors Service reaffirmed the top rating for U.S. sovereign debt, with a positive outlook.


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