Fitch affirms U.S. credit rating, but patience is limited

Fitch Ratings gave the U.S. government a clean bill of health Tuesday, confirming a top, AAA rating for Treasury bonds and proclaiming a future downgrade unlikely.

The vote of confidence from the New York debt-rating company contrasts with the view from Standard & Poor's, which demoted the United states to AA+ a few days ago. The other major rating agency, Moody's, still gives the United States AAA but has cut the outlook to negative.

In what looks like a pointed retort to S&P, Fitch nearly gushed about America's ability to pay its obligations. The "key pillars" of America's creditworthiness remain intact, it said. The dollar is "the preeminent reserve currency," the agency said. Treasury obligations "remain the global benchmark" for investors.

And the U.S. economy, Fitch said, "remains one of the most productive in the world."

All this is true. The question, however, is whether the people running the country will tap that great economy to honor America's promises. Even for Fitch that's an open question.

Just as S&P's red check does not prove that America is a deadbeat, Fitch's gold seal does not make the country's bonds risk-free.

It's all in the assumptions. Assuming anything about Washington or the economy lately has proven a hazardous proposition.

Whereas the raucous events leading up to the Aug. 2 debt-ceiling agreement alarmed S&P, Fitch called the deal a "significant positive development" that showed "political commitment to place U.S. public finances on a sustainable path."

Fitch seems somewhat confident that at least some of the tax cuts passed under President George W. Bush in 2001 will expire at the end of 2012 as scheduled. Letting the tax reductions for high-income households run out, Fitch said, could generate $1 trillion in additional revenue over a decade and help reduce deficits.

S&P, on the other hand, assumed that the Bush tax cuts would continue, because, it said, "the majority of Republicans in Congress continue to resist any measure that would raise revenues."

But Fitch isn't giving Congress permission to carry on as before. Much will depend on the success of the special congressional committee charged with finding another $1.5 trillion in deficit-reduction measures before the end of November.

If the committee fails, Fitch would be "less than confident" that the country is on a sustainable fiscal path, the company said. This even though automatic cuts of $1.2 trillion would take effect if the committee doesn't reach a deal.

What seems clear is that all these agencies would be more comfortable with U.S. debt if the "super committee" agrees to even a relatively modest amount of new revenue.

Polls show that Americans hold quite firmly to two contradictory positions. They don't want taxes to go up. And they don't want to cut the Medicare program for seniors, which is the No. 1 budget buster.

Unless Washington soon chooses one alternative or the other, even Fitch will start to get nervous.

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