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That's because characteristics blamed for volatile markets in countries like Italy — high debt levels, slow economic growth, and government gridlock — fairly describe the United States now.
The debt ceiling has been the chief source of market angst lately, but that's a short-term problem.
The greater concern is: What happens if the United States, the risk-free benchmark from which all other assets in the global financial market are priced, loses its coveted triple-A rating? Nobody knows for sure.
But as James Melcher, founder and president of Balestra Capital in New York, puts it, "If the impossible occurs, everything else becomes possible. It would have psychological repercussions that could be serious, and that certainly sets the stage for things to deteriorate."
It isn't a far-fetched scenario.
Standard & Poor's and Moody's Investors Service warned last week that they might cut the U.S. rating without major cuts in spending, even if politicians manage to stave off default by raising the U.S. debt ceiling.
Some fear Congress may never be able to cut the deficit or raise revenues substantially.
The United States is set to run a $1.4 trillion shortfall in the fiscal year ending Sept. 30, one of the largest as a share of output since World War II.
Originally posted by surrealist
Hold on. Which credit rating agency do you guys refer to? My understanding is that the only agencies that have so far downgraded are Weiss and Egan-Jones. Not S&P, Moody's or Fitch at this stage.