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Economic Advisor to State Department: Downgrade of US Likely

An economic analyst invited by the State Department to brief a group of foreign journalists on the U.S. economy. Her presentation included a forecast of the US economy for the next few years. Her prediction–not so good. Without a plan to change direction of the spending she expects that another downgrade of the United States Treasury Securities is very possible.

Prior to August, 2011 the United States Treasury had maintained a AAA rating. By signing approval to increase the debt limit the US saw it’s first rating drop as many companies lowered it to AA+.  Our neighbor to the north, Canada, has maintained its AAA rating for example while countries like UAE and Bermuda are rated AA.

Kathy Bostjancic is director for macroeconomic analysis at The Conference Board. A specialist in the U.S. economy and financial markets, she is a member of the team that produces the U.S. economic forecast and global outlook for The Conference Board. From her bio: Kathy Bostjancic  oversees and is a regular participant in The Conference Board Economics Watch™ monthly webcasts and author of The Economics Watch U.S. View. She appears regularly on Bloomberg Radio and TV and in the financial press.

The outlook from Ms. Bostjancic is not so rosy. She voiced concerns that the sequestration cuts (the fiscal cliff) will not be acceptable to either party but there are few options to pay to keep the impacted programs:

 

At the beginning of her presentation: So we’re looking at GDP growth for 2013 – let’s make sure I have the right number – I think we’re looking at roughly around 1.5 percent or so.

And a little bit later: And I should add, actually, in all fairness, that the fiscal cliff has already impacted fourth quarter growth and third quarter growth to some degree, because orders – business orders have plummeted and business shipments – again, businesses are just paralyzed right now trying to see what happens with the election and the fiscal cliff.

Al Wafd News: Why is there this pessimistic – over-pessimistic look to the U.S. economy?

Bostjancic: A little of this a little of that and then …In terms of the downgrade, there is a concern – I mean, to me, it seems the odds of us getting downgraded again are very high, because I don’t see either side, Republicans or Democrats, in favor of the sequestration of spending.

And she concludes in this election day speech: And in the short run, whether Obama wins or Romney and even the composition of Congress, unless somebody sweeps, which I think one party doing that is extremely low and unlikely – if we continue to have gridlock and divided government, the outcome of the election is not going to have much impact on the short-term economy. But it’s the medium-term view where we really need some clarity, and that’s where politicians can have some impact for good or worse. But laying out a credible, medium-term fiscal plan is what’s really needed, whether something such as Simpson-Bowles or something else. But therein lies – of course, everything’s wrapped up in that, and that’s where the real disagreement and the bipartisanship seems to be lacking right now.

Some think a downgrade of the US Treasury bonds will not directly affect them. But they might. Mortgage rates and credit card interest could rise. Retirement plans that include bond funds or the stock market may be impacted. The worth of the US Dollar may be lessened which could affect every day purchases. This over spending by the government and possible downgrade is sure to be felt by most Americans.

You can read the complete presentation at the State Department’s Website.

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