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Just last month, BofA’s Ethan Harris warned that the super-committee would likely fail and that the US would subsequently get slapped with a ratings downgrade.Well… don’t freak out about that just yet perhaps.
This came out today from BofA’s Michael Hanson:
In our view, the Super Committee is unlikely to agree to a plan, thereby triggering $1.2 trillion of automatic discretionary spending cuts. Under this scenario, we would see this as a further demonstration of the dysfunction in Washington DC, and it does little to push the US onto a sustainable debt trajectory. The rating agencies seem nonplussed. For example, a report from Moody’s earlier this week suggests that the fall-back outcome would not, by itself, warrant a downgrade in the near term. As a result, we no longer see a December downgrade as likely. However, we still see an elevated risk of a downgrade ahead of the election as the partisan divide would harden and the temptation to renege on past agreements increases.