Geithner says ‘no risk’ U.S. will lose AAA rating

Reuters) - U.S. Treasury Secretary Timothy Geithner went on the offensive one day after Standard & Poor’s threatened to downgrade its top-tier rating on U.S. government debt, saying there was “no risk” of a loss of the coveted rating.

Prospects for a deficit reduction deal were improving, Geithner said on Tuesday as he appeared in a morning blitz of television shows -- while saying in one appearance that he did not have to reassure foreign buyers of U.S. debt in the wake of the S&P decision.

Geithner said that Democrats and Republicans now agree on the need to put in place “enforceable” targets to slash deficits by some $4 trillion over the next decade or so.

“If you listen carefully now, you see the leadership of the United States of America ... recognizing now this is the right thing to do for the economy,” he told Fox Business Network.

Standard & Poor’s on Monday threatened to downgrade its AAA rating on U.S. Treasury debt unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years.

A downgrade would erode the status of the United States as the world’s most powerful economy and diminish the dollar’s role as the dominant global currency. It also would likely crank up borrowing costs, potentially hurting economic recovery as investors demand higher returns for holding U.S. debt. Geithner disputed S&P’s finding that the U.S. credit outlook was negative, and said it was difficult for people outside Washington to cut through partisan political rhetoric.

“Actually, I think things are better than they’ve been if you want to think about the prospects for improving our long-term fiscal position,” he said on CNBC.

“If you’re looking very carefully at what’s happening in Washington, you see people on both sides -- Democrats and Republicans -- agreeing with the president that we have to put in place some reforms now to bring down our long-term deficits,” he added.

Prices for U.S. government debt were little changed after Geithner’s remarks, while prices later rose modestly as worries about euro zone debt bolstered a safety bid for Treasuries. The benchmark 10-year Treasury yield was slightly lower for a second straight day.

LOCKING IN TARGETS

Geithner told Bloomberg Television that he did not have to reassure foreign buyers of U.S. debt in the wake of S&P’S decision and said investors were still showing confidence in U.S. debt and the growth prospects of the U.S. economy.

“You can see that in the price at which we borrow every day, but we have to earn that confidence,” he said.

President Barack Obama and Republican lawmakers have laid out competing visions for how to tackle the deficit, which is projected to hit $1.4 trillion this fiscal year.

Obama wants wealthy Americans to shoulder a greater share of the tax burden and has also proposed cuts in spending on domestic programs and the military. Republicans are pushing for deeper spending cuts and want to make permanent Bush-era tax cuts for families earning more than $250,000 a year.

Geithner said he believed it was possible for the Obama administration to secure a deal with Congress to “lock in” targets and mechanisms to cut deficits by $4 trillion over the next 10 to 12 years.

Entitlement programs such as Social Security and Medicare would have to be part of the discussions, he said.

Long-term deficit reduction also will require some “modest” tax hikes for wealthier Americans, Geithner said.

Obama, speaking at a student forum in Virginia, said he also believed that Republicans and Democrats can reach a deal to cut the deficits, but it won’t be easy.

“There will be some fierce disagreements,” Obama said.

US political rift was tipping point for negative S & P credit rating

NEW YORK: For the past 928 days, Standard & Poor’s has tracked the relentless deterioration of the U.S. government finances. On Monday, it made a move that could turn out to be one of its boldest calls yet.

That’s when S&P announced that it was revising the credit outlook for the United States to “negative.” Its message was simple: the country could lose its gold-plated AAA credit rating if Washington could not agree on a plan to slash the budget deficit within the next couple of years.

History does not favour the United States keeping its prized rating.  Of the four AAA-rated countries that S&P has placed on negative outlook between 1989 and this March, three were downgraded within 15 months on average. That would put July 26, 2012, as the date to watch for whether the United States loses the star credit status it has held since 1941. Such a move would likely make it much more expensive for the country to service its massive debt burden.

The decision to revise the U.S. credit outlook came during a conference call among seven S&P sovereign-debt analysts, who approved it in a simple majority vote.

S&P informed the Obama administration of its plans on the previous Friday, a White House spokesman said, though the exact timing remains murky.

What pushed the ratings committee off the fence wasn’t raw numbers. No one disputes the U.S. debt levels are too high. Both the Democratic White House and the Republican-led U.S. House agree on the need to slice about $4 trillion from the U.S. deficit over roughly a decade.

It was the poisonous politics in Washington that caused S&P to raise the red flag, interviews with S&P analysts over the past few days and its statement show. S&P since the late 1990s has added political risk to its evaluation of a country’s credit.

President Barack Obama last Wednesday offered a starkly different plan from Republican U.S. House Budget Chairman Paul Ryan on how to reduce the gigantic $14.3 trillion debt load, one that has grown by about 60 percent in less than three years. There is little hard evidence the two sides are ready to reach agreement before the 2012 election.

“The gulf has never been wider,” David Beers , the global head of Standard & Poor’s sovereign ratings team, told Reuters Insider on Monday.

“Even the president, in his speech last week highlighted that these are very big political differences. And we think it’s going to take a lot of effort and a lot of political will across the parties to bridge that gulf and do it in a way that is credible,” he added.

ABC News reported on Wednesday that the Obama administration asked S&P to hold off on issuing its report until after the president and Congress completed discussions on the 2011 budget and Obama made his deficit reduction speech on April 13.

The U.S. Treasury said it had no comment on the report. S&P spokesman David Wargin said the agency has a constant dialogue and discussions with administration officials but would not discuss timing.

“As a matter of policy we don’t comment on conversations with governments we rate.”