'Fiscal Cliff' Deal Won’t Help US Rating: Egan-Jones
Assistant Producer, CNBC Asia
Even a compromise by Congress to avert a 'fiscal cliff' won't change the troubled credit outlook of the U.S. economy, which continues to face a huge debt burden, says Sean Egan, managing director of Egan-Jones, the ratings firm that has cut America's sovereign debt rating twice this year.
"The key measure on sovereign credit quality is debt-to-GDP, in the case of the U.S., it's risen rather dramatically, from four years ago at 75 percent debt-to-GDP, to currently over 104 percent," Egan told CNBC on Tuesday.
"The problem in the U.S. is that the debt has grown whereas the GDP has not grown. (While) the U.S. has had the benefit of being the major reserve currency, that only takes it so far," he added.
Egan-Jones first cut U.S. credit rating to AA from AA+ in April, citing concerns over a lack of progress in cutting federal debt; and again in September, to AA-, triggered by concerns the quantitative easing from the Federal Reserve would hurt the country's credit quality.
(Read more: US Credit Rating Cut by Egan-Jones ... Again)
The independent credit-research firm has assigned U.S. the lowest sovereign debt rating among the four major ratings agencies. Moody's Investors Service rates the United States Aaa, while Fitch has assigned a AAA rating, and Standard & Poor's (S&P) a AA-plus.
The "fiscal cliff" is the term used to describe a series of tax hikes and spending cuts that will take place in January if Congress and the White House fail to reach deficit-reduction targets.
Concerns over this fiscal precipice have delayed investment and hiring decisions by companies, and if not avoided, could push the U.S. economy into a recession, analysts have warned.
Financial industry leaders including Goldman Sachs CEO Lloyd Blankfein believe a deal can be reached despite the bitter election battle between President Barack Obama and Republican challenger Mitt Romney.
Obama and Romney were in a tight race on the eve of the election, but the latest Reuters/Ipsos national poll of likely voters, a daily tracking poll, gave the Democratic candidate a slight edge, with 48 percent support compared to Romney's 46 percent.
When asked which presidential candidate is better positioned to tackle issues facing the U.S. economy, Egan said both Obama and Romney will be faced with the same hurdles.
"Regardless of who's elected, either one is going to have to deal with a rather high deficit and (deal with) the pending retirement of a number of baby boomers who have been critical to the economy," he said.
