In an interview with Dow Jones, Standard & Poor's Ratings John Chambers said, "It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes...It is very important for Congress to take the required steps." Chambers is the chairman of S&P's sovereign rating committee that just downgraded Ireland from AA to AA-.
This follows up the comments by S&P in July that warned the U.S. does not have unlimited fiscal flexibility. S&P still maintains their AAA rating for the U.S. but clearly is increasing the rhetoric and pressure to act.
Why? Simply, the US has a deficit problem and a deficit commission. Both are in play with the US running a $1.4 trillion deficit and the President's deficit commission set to make its recommendations by the end of the year. The Bipartisan Commission on Fiscal Responsibility is tasked with finding ways to reduce federal deficits. However, the first order of business seems to be ousting one of its members.
Former Senator Alan Simpson and current co-chair of the commission sent an email that is causing a stir and calls for his resignation. Sadly, he sent to the executive director of the Older Women's League (OWL) and wrote: "I've made some plenty smart cracks about people on Social Security who milk it to the last degree. You know 'em too. It's the same with any system in America. We've reached a point now where it's like a milk cow with 310 million (teats)!" Does this remind anyone of Lyndon Johnson?
Simpson has subsequently apologized, but the damage is done. Serious discussion about what the US can afford with Social Security and what it should pay appears to be taken off the table for the commission. Remember, the Congressional Budget Office has stated that Social Security's annual expenses will exceed annual revenues (excluding interest) for the first time this year since the 1983 overhaul.
President Obama would do well to assuage rating agencies fears by making a statement to the contrary and putting the commission back on firmer ground. Otherwise by the end of the year, the commission will likely devolve into partisan bickering and the US credit rating will follow.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.