Fitch move warns US of governance, fiscal challenge

Fitch Ratings' decision to place the AAA credit rating of the United States on a negative watch list is a timely reminder for some Republicans and the world 's largest economy needs to improve its long-term fiscal sustainability, said Arvind Subramanian, a senior fellow at the Washington-based Peterson Institute for International Economics, Wednesday.

"For any other country that is likely to default, it will immediately be put on the watch list," Subramanian said in an interview with Xinhua.

Fitch Ratings, a global rating agency based in New York City, on Tuesday placed U.S. "AAA" credit rating on rating watch negative, as American authorities have not raised the federal debt ceiling in a timely manner before the U.S. Department of Treasury exhausts its extraordinary measures Thursday. The U.S. government has been forced to close partially for the first time in 17 years starting Oct. 1 due to a lack of money to fund the federal governmental agencies. Treasury Secretary Jacob Lew has warned that a debt limit agreement needs to be reached no later than Oct. 17.

"It's a warning to the extremists in the Republican party, because they are saying nothing will happen," said Subramanian, who described the latest round of fiscal wrangle between U.S. Democrats and Republicans was an example of "lousy governance."

The United States is confronted with long-term fiscal challenges and it should endeavor to control its spiking health care costs, he stressed.

There are underlying ideological clashes between the two parties, but the government shutdown lasting for more than two weeks and a debt default crisis reflected the "structural problem" in U.S. politics as one extreme faction of Republicans were willing to hold the economy hostage to get concessions from Democrats in the divided government, Subramanian said.

"Even if there is solution to the fiscal impasse, it's only temporary. We are going to come back to this mess in several months down the road," Subramanian noted.

A bipartisan deal to end the fiscal deadlock emerging Wednesday in the Senate would lift the debt limit through Feb. 7 and fund the federal government through Jan. 15. A vote of the deal in both the Senate and the House of Representatives was expected later in the day.

The nation will be lurching from one manufactured budget crisis to another unless the mid-term elections in 2014 change the political landscape. If the extremists in the Republicans are reelected next year, the Washington will continue to see one fiscal fight after another, Subramanian said.

"The fact that this will keep happening means the rest of the world should reassess the safety of holding U.S. government debt. Both governments and the private sector need to reassess the safety of U.S. Treasury securities," he warned.