GLOBAL - Ten US pension funds, managing more than $1trn (€690m) of assets, have written an open letter to US president Barack Obama and Congress urging them to "rise above" party politics and act immediately on the country's growing federal deficit.
Several of the schemes urging action are influential investors, including the $239bn CalPERS, the country's largest single scheme.
Other prominent funds include the New York State Common Retirement Fund, which manages $141bn, and the California State Teachers' Retirement System, which has $154bn.
Combined, the 10 funds cover more than 7.7m members.
In their letter, they warn that the deficit threatens to "inflict pain and hardship on all our citizens for many years to come if we fail to act - and act now".
Its publication comes at a time when talks on deficit reductions have stalled, with Obama and Congress at odds over proposals to raise the US debt ceiling.
A proposal put forward by the speaker of the House of Representatives, Republican John Boehner, to cut $850bn clashed with Obama's proposals, which some have criticised as being short-termist.
Democrat Harry Reid's plan proposes $2.2trn in spending cuts, with neither bill implementing any tax increases, reflecting strong Republican resistance to any such hikes.
The pension funds said the idea of the US losing its AAA credit rating was "once unthinkable", but now "highly likely if our leaders fail to act".
They added: "The consequences of such a downgrade are very real and very serious."
If rating agencies downgraded the US from AAA, the fallout would be "felt across all America", the schemes warned. Investors would perceive higher risk and shy from buying US bonds, in turn leading to increased interest rates, they said.
A downgrade would also devalue the dollar as investors moved to other currencies. Six other countries currently maintain a safe AAA rating, such as France and Germany. A weak dollar, the funds said, could result in higher inflation in the US, hurt job creation and ultimately impede economic growth.
Pension funds themselves would suffer as well, as the consequences of a credit downgrade would "have a devastating impact on our portfolios".
Ending on an optimistic note, the letter said this was "by no means inevitable", if politicians could "put our nation's interest above party and politics" and work together toward a solution.