If the highly partisan Congress does not reach a budget deal, about $1.2 trillion in spending cuts and tax increases will automatically kick in starting Jan. 2, a scenario thatâ??s been called the “fiscal cliff,” because it is likely to send the economy back into recession and drive unemployment up.
The Republican speaker of the House of Representatives said Tuesday heâ??s not confident Congress can reach a budget deal and avoid the downgrading. He said the Senate needs to act and President Barack Obama needs to show some leadership.Any real negotiations are not expected until after the November presidential elections.
A year ago, Moodyâ??s cut its outlook on U.S. debt to “negative,” which acts as a warning that it might downgrade the rating, after partisan wrangling over raising the U.S. debt limit led the nation to the brink of default.Rival agency Standard & Poorâ??s took the drastic step of stripping the government of its “AAA” rating on its bonds around the same time.