The idea was floated yesterday that the US is in danger of losing its “Triple A” rating.
I don’t think it is… yet. However I do believe, especially after November, that it is inevitable the US is going to go the way of Europe and focus on deficit reduction rather than stimulus. It is absolutely correct that the US starts taking action on its untamed deficit, currently running at 10% of GDP.
There is nothing like the threat of losing the Triple A rating to focus those in power’s minds – look at the UK. The UK government, with its new deficit reduction plan, is hanging on to its Triple A rating, but is acutely aware that it has to follow through with its spending cuts if it is to retain it. All eyes will be on the new review due in October.
I truly believe the US will have to follow the UK’s lead – Obama will have to cut spending without compromising his core values (in the UK’s case, this has been done with the ringfenced spending for the NHS and foreign aid with other departments getting savage 25-40% cuts). It can be done. It has to be done to restore confidence in the American economy.