S&P chief says firm’s analysts don’t believe U.S. will default

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The head of Standard & Poor’s told lawmakers Wednesday the credit rating firm’s analysts don’t believe the U.S. will default on its obligations but are waiting for a ‘credible’ plan to increase the debt ceiling by the Aug. 2 deadline that also will reduce the long-term budget deficit.

Deven Sharma, S&P’s president, said the bigger risk right now is that the firm will downgrade the nation’s triple-A credit rating because Congress and the White House can not agree on a package of spending cuts and possible revenue increases.

‘The more important issue is really the long-term growth rate of the debt … as well as the deficit. That is the more important issue at hand,’ Sharma told a House Financial Services subcommittee at a hearing about new regulation of the much-criticized credit-rating industry.

Asked directly by Rep. Francisco Canseco (R-Texas) if he believed the U.S. would default on its debt, Sharma said, ‘Our analysts don’t believe they would.’

Although S&P has said a plan that reduces the budget by $4 trillion over the next 10 to 12 years would save the nation’s top-level credit rating, Sharma indicated that was not a magic number. It’s possible that a package of budget savings that is less than $4 trillion would satisfy S&P’s analysts, he said.

A plan by House Speaker John Boehner (R-Ohio) to raise the debt ceiling contains $850 billion in budget cuts over the next 10 years, according to the Congressional Budget Office.

A competing plan by Senate Majority Leader Harry Reid (D-Nev.) that is backed by President Obama would cut spending by $2.2 trillion over the same period, the CBO said. But neither has the bipartisan support needed to become law at this point.

Sharma said reports that S&P favored Reid’s plan over Boehner’s were incorrect.

‘We do not comment on any specific plan or any of the political or policy choices made,’ he said.

For the record, 5:15 p.m., July 27: An earlier version of this post said that the debt ceiling plan from Senate Majority Leader Harry Reid would cut spending by $2.2 billion. It cuts spending by $2.2 trillion.

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-- Jim Puzzanghera