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S&P: Deficit cuts of $4 trillion a good start

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By Walter Brandimarte and Daniel Bases

NEW YORK (Reuters) - A U.S. deficit reduction plan that promises $4 trillion in savings over time would be a "good down payment" on getting the country's strained public finances under control, ratings agency Standard & Poor's said Thursday.

While more savings would be needed over time, $4 trillion "takes you pretty far along, and I think a grand bargain of that nature would signal the seriousness of policymakers to address the fiscal position of the United States," said John Chambers, chairman of S&P's sovereign ratings committee, on a conference call with clients.

"Four trillion dollars would be a good down payment," he said.

S&P has warned it may cut the United States' top AAA credit rating even if a deal on raising the government's debt ceiling is not accompanied by a credible plan to cut the deficit.

Republicans and Democrats have clashed over the role tax cuts should play and are pushing separate plans, both of which fall short of $4 trillion in savings over the next decade or so.

Republicans have refused to raise the country's $14.3 trillion borrowing limit without a deal and Treasury says it will run out of money to pay its obligations by August 2.

The issue has become so contentious this year because the U.S. budget deficit has blown out to $1.4 trillion. At about 9 percent of gross domestic product, that's one of the highest since World War II.

Chambers said the drawn-out debate about the debt ceiling, which markets fear may not be raised until the last possible minute, has been detrimental for the country and has caused "needless uncertainty in the market."

"The United States benefits from strong checks and balances, and strong institutions for 200 years, but the debate around the debt ceiling I think has been detrimental because this has been self-inflicted," he said. "This hasn't been an external shock imposed upon the people."

But he said the U.S. dollar, which has struggled this week for fear a failure to raise the borrowing limit could force the Treasury to default on some of its obligations, would weather the storm and remain the world's reserve currency.

"The dollar is the key international reserve currency and under almost any scenario, it will remain so for a long period to come," he said.