A day after the UK was downgraded by rating agency Standard & Poor’s to negative, the US also saw its shares tumbling down and Treasury yields going up after PIMCO’s Bill Gross said in an interview with Bloomberg that the markets are now being troubled by the possibility of the US eventually losing its AAA rating.
While it will not happen overnight, Gross said it is only a matter of time before this happens. Geithner was quick to respond by calling on the Obama administration to enact policies that aims to cut the budget deficit to 3% of GDP from the projected 12.5% this year.
“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television. He added that the target is reducing the gap to 3 percent of gross domestic product or smaller, from a projected 12.9 percent this year.
“The important thing to recognize is that growth will stabilize and start to increase first before unemployment peaks and starts to come down,” he said. “These early signs of stability are very important” although “this is still a very challenging period for businesses and families across the United States.”
How cutting the deficit by that much could happen and when is still yet to be seen.