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Asset Based Loan

Are Treasurys in store for another downgrade?

With another debt ceiling looming, are Treasury’s in store for another credit downgrade by Standard & Poor’s and possibly Moody’s?

The U.S. Treasury has said that unless the debt ceiling is raised, the country will reach it’s debt ceiling again by roughly end of December 2012.      If the government political parties have another harsh fight and reluctantly come to an agreement at the last possible minute, there is the prospect that there may be another U.S. government credit downgrade.     Such a downgrade would be especially harmful as it would come on the heels of the first ever U.S. credit downgrade in history by Standard & Poors in 2011.     Most concerning, though Standard & Poor’s stated that the U.S. long term national debt and annual deficit were the reasons it cited as the reason for the downgrade, it stated that it was done at that time, rather than at a possible later date,  due to political brinksmanship between the powers of Government in the United States.

The fighting between the parties was cited as reflecting low confidence that the government is willing to solve it’s problems.   Little has changed since then.

The last round of bipartisan committees have stated that the only way to solve the budget deficits and balance the budget, which is the only way to solve the long term national debt, is to have a combination of spending cuts and tax increases.

If an early compromise is not reached,  look for a strong prospect that another credit downgrade may occur, further eroding confidence in U.S. markets and Teasury’s.

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