US Budget Governance “Less Stable”

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Ratings agency Standard and Poor’s has called for the US government to address its budget problems following a temporary agreement over the “fiscal cliff”.

Arguing that “Washington’s governance and policymaking had become less stable” Standard and Poor’s cited recent events as demonstrating that current budget governance was “less stable, less effective and less predictable”.

The deal reached by Republican and Democrat lawmakers avoided a potential $536bn of tax rises and $109bn of spending cuts, but saw a lower increase in tax revenues sought by the Democrats and a postponement of when the spending cuts sought by the Republicans would be agreed upon.

Previous disagreement in 2011 between the Democrats and the Republicans led to S&P to downgrade the US’s credit rating from AAA to AA+, following a heated stalemate between the Republican controlled House of Representatives and the Democrat controlled Senate about raising the government’s ‘debt ceiling’.

Standard and Poor’s intervention followed an earlier statement by rival Ratings agency Moody’s, which currently put’s the country on a negative outlook, that the US needed to take additional measures to resolve the country’s increasing debt.

Before the “fiscal cliff” agreement Moody’s had called for members of both houses to seek an agreement which would “produce a stabilisation and then a downward trend in the ratio of federal debt to GDP over the medium term”.

Commenting on the current division between the two houses of congress Erskine Bowles, who headed a bipartisan debt commission in 2010, said that the political parties “didn’t do any of the tough stuff” then and that the US has “taken two steps now, but those two steps aren’t enough to put our fiscal house in order”.

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