CNBC reports that Sunday night's deal that will see the US debt ceiling raised if it passes a vote in the House is merely a "band aid" and certainly not a game changer, according to an assessment from Barclays Capital.
The deal “is certainly not a game-changing breakthrough, and will keep the possibility of a near-term rating downgrade alive; it represents, in our view, just a band-aid approach on the way to more sustainable public finances,” said Julian Callow, the chief European economist at Barclays Capital in a research note on Monday.
The big problem for Callow is the slowdown in the US economy, which could mean any savings are offset by significantly lower revenue.
“All of the putative fiscal savings could effectively be wiped out if US GDP outturns continue to be significantly weaker than is assumed in government fiscal baseline projections,” Callow said.
Unless the credit ratings agencies believe the new enforcement mechanism is credible, Callow predicts they will downgrade US debt even though the debt ceiling has been raised.
Read more at http://www.cnbc.com/id/43968268
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