* More savings needed to stabilize debt-to-GDP ratio
* $4 trillion deficit cuts would signal political will
* Dollar to remain reserve currency under any scenario
(Adds quotes from S&P director, background)
By Walter Brandimarte and Daniel Bases
NEW YORK, July 28 Cutting the U.S. deficit by
some $4 trillion over 10 years would be a good start, but more
savings would be needed over time to bring the country's
finances under control, ratings agency Standard & Poor's said
John Chambers, the chairman of S&P's sovereign ratings
committee, said deficit cuts of that magnitude "would signal
the seriousness of policymakers to address the fiscal position
of the United States."
His comments, made during a conference call with clients,
suggest S&P would probably be convinced to keep U.S. ratings at
AAA if lawmakers were to show commitment to solving the debt
problem with bold deficit-cutting measures.
Chambers added, however, that $4 trillion in savings,
"depending on whether it was frontloaded or backloaded, is not
going to do the trick in terms of stabilizing the U.S.
government debt-to-GDP ratio.
That ratio, which measures the country's debt load against
the size of its economy, is one of the main factors considered
by ratings agencies on deciding on a rating. It depends on
cutting the deficit as much as it depends on economic growth.
Chambers noted that, according to the International
Monetary Fund, the U.S. government would have to come up with
savings of about 7.5 percent of its gross domestic product to
actually stabilize its debt-to-GDP ratio.
"I think we have it a little more than that, but $4
trillion would be a good down payment," he said, referring to
the figure originally proposed by the Simpson-Bowles deficit
commission and embraced by President Barack Obama in April.
Savings equal to 7.5 percent of U.S. GDP would represent
around $1 trillion a year.
None of the plans currently being discussed in Washington
achieve deficit cuts of that magnitude. [ID:nN1E76R004]
Republicans have refused to raise the country's $14.3
trillion borrowing limit without a deal and Treasury says it
will run out of money to pay its obligations by Aug. 2.
The issue has become so contentious this year because the
U.S. budget deficit has blown out to $1.4 trillion. At about 9
percent of gross domestic product, that's one of the highest
since World War II.
Chambers said the drawn-out debate about the debt ceiling,
which markets fear may not be raised until the last possible
minute, has been detrimental for the country and has caused
"needless uncertainty in the market."
"The United States benefits from strong checks and
balances, and strong institutions for 200 years, but the debate
around the debt ceiling I think has been detrimental because
this has been self-inflicted," he said. "This hasn't been an
external shock imposed upon the people."
But he said the U.S. dollar, which has struggled this week
for fear a failure to raise the borrowing limit could force the
Treasury to default on some of its obligations, would weather
the storm and remain the world's reserve currency.
"The dollar is the key international reserve currency and
under almost any scenario, it will remain so for a long period
to come," he said.