The reductions would mainly affect outlays for civilian discretionaryspending, defense, and Medicare. We understand that this fall-back mechanismis designed to encourage Congress to embrace a more balanced mix ofexpenditure savings, as the committee might recommend.We note that in a letter to Congress on Aug. 1, 2011, the CongressionalBudget Office (CBO) estimated total budgetary savings under the act to be atleast $2.1 trillion over the next 10 years relative to its baselineassumptions. In updating our own fiscal projections, with certainmodifications outlined below, we have relied on the CBO's latest "AlternateFiscal Scenario" of June 2011, updated to include the CBO assumptionscontained in its Aug. 1 letter to Congress. In general, the CBO's "AlternateFiscal Scenario" assumes a continuation of recent Congressional actionoverriding existing law.We view the act's measures as a step toward fiscal consolidation.However, this is within the framework of a legislative mechanism that leavesopen the details of what is finally agreed to until the end of 2011, andCongress and the Administration could modify any agreement in the future. Evenassuming that at least $2.1 trillion of the spending reductions the actenvisages are implemented, we maintain our view that the U.S. net generalgovernment debt burden (all levels of government combined, excluding liquidfinancial assets) will likely continue to grow. Under our revised base casefiscal scenario--which we consider to be consistent with a 'AA+' long-termrating and a negative outlook--we now project that net general government debtwould rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is highin relation to those of peer credits and, as noted, would continue to riseunder the act's revised policy settings.Compared with previous projections, our revised base case scenario nowassumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012,remain in place. We have changed our assumption on this because the majorityof Republicans in Congress continue to resist any measure that would raiserevenues, a position we believe Congress reinforced by passing the act. Keymacroeconomic assumptions in the base case scenario include trend real GDPgrowth of 3% and consumer price inflation near 2% annually over the decade.Our revised upside scenario--which, other things being equal, we view asconsistent with the outlook on the 'AA+' long-term rating being revised tostable--retains these same macroeconomic assumptions. In addition, itincorporates $950 billion of new revenues on the assumption that the 2001 and2003 tax cuts for high earners lapse from 2013 onwards, as the Administrationis advocating. In this scenario, we project that the net general governmentdebt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.Our revised downside scenario--which, other things being equal, we viewas being consistent with a possible further downgrade to a 'AA' long-termrating--features less-favorable macroeconomic assumptions, as outlined belowand also assumes that the second round of spending cuts (at least $1.2trillion) that the act calls for does not occur. This scenario also assumessomewhat higher nominal interest rates for U.S. Treasuries. We still believethat the role of the U.S. dollar as the key