By TraderVox.com
Tradervox.com (Dublin) – The US risks losing its sovereign credit rating due to the current economic crisis in the country. According to Pacific Investment Management Co, the “fiscal theater” currently playing out in the US poses a major risk to its credit rating. Talking in Wellington, Scott Mather, who is Pimco’s Head of Global Portfolio Management, said that the US will be downgraded as soon as the first quarter next year. His comments are supported by the Congressional Budget Office warning against the $600billion government spending cuts and tax increases that are set to start in 2013. The CBO warned that the US economy will fall into recession if these cuts are started.
Mather further pointed out that the market is waiting to see whether the Congress and White House will agree to defer the “fiscal drag” on the economy until next year. He went further to conclude that if president Obama wins the election and the congress becomes more republican, it will be hard for an agreement to reached peacefully without disruption in the marketplace. He also noted that the policy makers are likely to agree on cutbacks that will lower the economic growth by almost 1.5 percentage point in 2013. Discussions about the scenarios that would lead to a 4.5 percentage point fiscal drag is expected to keep the market volatile.
In his statement this month, Bill Gross, the manager of Total Return Fund at pimco, said that the US risks losing its attractiveness as the first destination of global capital searching for safe returns unless fiscal spending and debt are reduced significantly. He said this as he reduced his holdings of treasuries for the third month in a row. Pimco is forecasting a global growth of 1.75 percent through to September next year, saying that global economic growth is being tampered by the euro area recession and the slowdown economic growth in China.
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