Fitch said that its decision, which followed a similar one by Moody's, reflected "large fiscal imbalances, high indebtedness across all sectors and adverse macroeconomic outlook" facing Portugal.
"The added savings of the increasingly affluent must be loaned to balance total current expenditure," he writes, "but increasing indebtedness implies financial fragility, periodic financial crises, greater volatility of aggregate income and, as governments respond to mass unemployment with counter-cyclical fiscal policies, a compounding instability of public finances".
The "fiscal cliff" would lower the nation's indebtedness by $7.8 trillion over 10 years and bring the budget nearly to balance by 2016.
Such a policy response would have to include pro-growth structural reforms (such as higher infrastructure investment, a tax overhaul, and labor retooling), more responsive fiscal policy, relief for pockets of excessive indebtedness, and improved global coordination.
The Japanese economics minister, Heizo Takenaka, said that he hoped the Bank of Japan would take additional monetary easing steps, given that the government's fiscal policy is constrained by its huge indebtedness.
Fiscal stimulus is impossible for most governments, given their indebtedness.
Governments also neglected that total, public and private indebtedness matters, and that delaying public-sector fiscal consolidation could allow the private sector to deleverage without collapsing the economy.
This week the World Bank, at one time critical of the IMF, published a report on the Asian crisis that advocated lower interest rates and looser fiscal policies, and emphasised the importance of debt workouts reducing indebtedness in agreement with creditors and attracting new capital.
Public indebtedness is another economic factor related to the fiscal burden that could influence social expenditures.
Therefore, our growing indebtedness is quickly obliterating the dividing line between domestic fiscal policy and foreign policy.
