Unless members of Congress in Washington can pass a budget by the October 1st deadline, the largest economic system is again on the verge of a government shutdown. In 2011, the S&P lowered the long-term credit rating from AAA (which is considered a "risk-free" rating) to AA+, due to the political disagreements encountered during yet another showdown concerning the debt ceiling.
According to John Chambers, former chairman of the Sovereign Rating Committee at S&P Global Ratings, the U.S. is in a weaker position now than when S&P controversially downgraded the long-term credit rating from the AAA representing a "risk free" rating to AA+ in 2011. As the world's largest economy faces the Oct. 1 deadline for passing a spending bill before a government shutdown, House Speaker Kevin McCarthy has to hold off demands from hard-right members of his caucus for deeper domestic spending cuts. In addition, Moody's and Fitch have warned of damage to the country's credit if this situation is not resolved. Chambers told CNBC's "Capital Connection" on Tuesday that a government shutdown is likely and that the whole episode is a "sign of weak governance," which S&P highlighted in their 2011 downgrade. He further noted that the deficit of the general government and government debt are both over 7% and 120% of GDP, respectively, compared to the forecast of 100% of GDP back in 2011.
The external state of the economy is similar to before, but the political gridlock has gotten worse and has caused government shutdowns, fears of the government defaulting, and the failed insurrection on the 6th of January. In order to pass budgets, House Speaker McCarthy needs nearly all Republicans to back him, however the Freedom Caucus has posed an impasse, pushing for severe domestic spending cuts. In order to pass the budget, McCarthy might need to look to the Democrats for assistance, which hardline Republicans are threatening to oust McCarthy over if he does so. In May, the White House and Republican opposition once again locked horns over the debt ceiling, pushing the US to the brink of default before a resolution was found. In its August downgrade, Fitch blamed the "expected fiscal deterioration" over the next years and "repeated debt-limit political standoffs and last minute resolutions" for their downgrade. Nevertheless, it was largely disregarded by banking leaders and economists.
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