Executives at 15 of the nation’s largest financial companies are urging Washington to act quickly to avoid the year-end “fiscal cliff” while also taking “concrete steps to restore the United States’ long-term fiscal footing.”
“The consequences of inaction – for stability in global financial markets, for economic growth, for millions of Americans still without work, and for the financial circumstances of American businesses and households – would be very grave,” the executives said in a letter last week to the President and members of Congress.
The letter cited Fed Chairman Ben Bernanke’s warning that the fiscal cliff -- a simultaneous combination of “automatic” spending cuts and the scheduled expiration of tax cuts -- would put the U.S. economy back into recession. But the executives said simply avoiding the cliff was not enough and called for more responsible long-term budget policies as well.
They noted Moody’s threat last month to downgrade the United States’ AAA credit rating if upcoming fiscal negotiations do not “lead to specific policies that produce a stabilization and then downward trend” in the ratio of federal debt to GDP “over the medium term.”
The financial executives said such a downgrade -- coming after Standard & Poor’s lowered its rating for the U.S. government last year -- could lead to “significantly higher interest rates” that would worsen the country’s financial situation and increase instability in global financial markets.
Also last week, the Bipartisan Policy Center released a proposed “Framework for a Grand Bargain” that would allow Congress in its lame duck session this year to avoid the fiscal cliff as well as “set the stage for the 113th Congress to undertake spending cuts and revenue increases in order to stabilize the nation’s debt trajectory.”