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A contested election could cost the U.S. its credit rating

2020-10-14T00:03:52.717Z


A tough election could cause damage beyond belief in democracy. It could also cost the US your credit rating.


They vote early en masse, according to poll 2:40

(CNN Business) -

A tough election in the United States could cause damage that goes beyond belief in democracy.

It could also cost the country its perfect credit rating.

Fitch Ratings wrote in a report Monday that it will closely monitor the US presidential election for "any deviation" in the history of orderly transfers of power in the country.

The United States has a perfect AAA credit rating from Fitch.

This is partly due to its record of strong governance, which includes "well-understood rules and processes for the transfer of power," according to the report.

"Fitch would see a departure from this principle negatively when considering the US rating," the credit rating firm said.

In other words, a very tough choice could cost the United States Fitch's AAA credit rating.

What the AAA credit rating implies

A downgrade, in turn, could erode confidence among investors.

Which would trigger turmoil in the financial markets.

It could also make it more expensive for the US to finance its mountain of debt.

In July, Fitch lowered its outlook on the United States to negative, in part due to the "continuing deterioration" of the country's public finances.

And in the absence of a plan to address it.

Fitch said it will monitor signs that the election results are "widely accepted" and there is a "retention or orderly transition of power" on January 20, 2021.

  • LOOK: Biden leads poll with 54% compared to 42% of Trump in voting intention

The fact that even a major credit rating firm has to issue such a warning about one of the hallmarks of democracy underscores the growing political divide in America.

And also the nervousness on Wall Street about the elections.

A contested choice is the most commonly cited concern among portfolio managers surveyed by RBC Capital Markets.

This factor even outweighs concerns about the economy and the pandemic.

JPMorgan Chase Chief Executive Jamie Dimon on Tuesday expressed confidence in the ability to make it through the election.

"I have a lot of faith in this country and I am sure that we will have a proper election," Dimon told reporters during a conference call in response to a question about doubts about the election results.

Fitch: Electoral uncertainty could last for weeks

For months, investors have been bracing for the post-election chaos that could shake the financial markets.

Those concerns have been amplified by President Donald Trump's unsubstantiated claims that the election is "rigged" by unsubstantiated concerns about voting by mail.

But the International Monetary Fund (IMF), which lowered its global economic forecasts for 2021, does not expect a closed result on election night.

  • LOOK: These are the visions of Biden and Trump for the US economy.

"Our assumption for the US is that there will be no serious disruption during or after the elections," said Gita Gopinath, the IMF's chief economist, during a press conference on Tuesday.

“This is supposed to take place like any previous election in America.

Of course, if that is not the case and there is more political uncertainty and shocks, that would obviously be a downside risk to the forecast, "he added.

Even so, Fitch said the popularity of voting by mail due to the pandemic means that the uncertainty around the winner of the election "could possibly last for weeks" after the Nov. 3 election.

"The challenges surrounding the voting process increase the likelihood that results at the state or national level will be contested by one or both candidates or partisan organizations," the report said.

'Deepening political polarization'

Of course, there is a precedent for a complicated choice.

The 2000 count dragged on for five weeks, bringing the S&P 500 Index down, before being detained by the US Supreme Court. Former Vice President Al Gore eventually yielded to George W. Bush, who was sworn in as the president of the United States number 43 weeks later.

"The disputed presidential election of 2000 did not weaken investor confidence in the US," Fitch said.

In 2011, S&P Global Ratings took the unprecedented step of downgrading the US credit rating due to the risk of raising the debt ceiling.

However, the other two major credit rating companies, Fitch and Moody's, maintained their AAA ratings for the United States.

Fitch noted that disputes over the 2011 and 2013 debt limits, as well as recurring government shutdowns, have had a "limited impact" on confidence in the United States.

  • LEE: The US debt will be greater than its economy, according to projections

The US entered the pandemic with the highest debt of any AAA-rated government.

And the latest projections indicate that America's debt is now larger than the total size of the economy.

It is the first time this has happened since shortly after World War II.

"The potential for a disputed electoral result reflects a deepening political polarization," Fitch wrote, "which could affect the scope of the next administration's policymaking and how it approaches public policy decision-making on key issues."

CNN's Pamela Boykoff contributed to this report.

Elections 2020 United States

Source: cnnespanol

All news articles on 2020-10-14

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