EconomyWatch Exclusive: Elizabeth MacDonald on the US Debt Crisis

Aug. 3, 2011 - PRLog -- What does everyone need to know about the debt crisis and how can you beat the bad economy? FOX Business Network stocks editor and reporter Elizabeth MacDonald has been closely monitoring the debt crisis currently enveloping the United States. It’s an issue that extends beyond the US and one with many complexities, MacDonald takes time to weigh in and break it down in this exclusive interview.

Q. What are 5 things every American needs to know about the debt crisis?

A. The debt deal doesn’t fix the long-term trajectory of U.S. debt, which is growing as the baby boomers retire and Social Security and Medicare come under duress. Also Medicaid is handling half the uninsured via health reform, so there’s more debt there too coming.

Both Moody's Investors Service and Standard & Poor’s  want a credible plan on long term U.S. debt reduction on the order of at least $4 trillion.

S&P has been notably pointed in its criticisms. [quote]John Chambers, its head of sovereign ratings, said on a client conference call late last week that $4 trillion in cuts is just “a good start;” it wants more to stabilize the United States’ annual budget deficit-to-GDP ratio, now at more than 9%. The International Monetary Fund has said that a healthy ratio here is 7.5%.[/quote]

Chambers also indicated that the “acrimonious” fights in Washington were the most “detrimental” to the U.S. credit rating outlook. The plan’s new three-step process under which the government would raise the debt ceiling may risk more uncertainty and infighting, which S&P has already frowned on.


S&P was first out of the ratings agencies to say that the U.S. had a one in three risk of a downgrade, after stating earlier this year the odds of a downgrade were 50-50. It said it put the U.S. on a fast-track the possible downgrade because of the fights in D.C.

Changes in ratings are usually lagging indicators; they usually follow, rather than cause, economic chaos. Chambers noted that the threat to downgrade the U.S. rating didn’t come from “external” shocks, but were “self-inflicted” by the partisan gridlock and disruptive fighting in D.C.

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