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Friday
Aug052011

S&P Downgrades US Credit Rating

Scott Eells/Bloomberg via Getty Images/ABC News Radio(TORONTO) -- The ratings agency Standard & Poor's has reduced the United States' credit rating from AAA to AA+, the company announced late Friday.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," Standard & Poor's said in a statement announcing the move.

"More broadly," the agency added, "the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

"Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon," S&P added.

The federal government had been expecting and preparing for Standard & Poor's to downgrade the rating of U.S. debt, government officials told ABC News before the reduction was formally announced.

However, another government official said S&P's analysis was "based on flawed math and assumptions" to the tune of roughly $2 trillion, so the Obama administration pushed back.  Even though "S&P has acknowledged its numbers are wrong," the official said before the reduction.

S&P refused to comment at the time on the alleged numerical error.

Last month, Standard & Poor's warned that the U.S. risked a downgrade to AA status if Congress did not lift the debt ceiling and reduce the total debt by $4 trillion over the next decade. It later toned down its warning.

S&P is the last of the major ratings agencies to comment about U.S. credit rating after the Senate passed an agreement Tuesday to raise the debt ceiling and avoid a default on U.S. debt, following passage in the House on Monday evening.

After the bill passed in the Senate, Moody's Investor Service affirmed its AAA rating on U.S. sovereign debt but lowered its outlook to "negative."

At stake in all this is not only interest rates the U.S. must pay on its $14.4 trillion debt, but a host of rates for consumers ranging from those on items from mortgages to car loans to credit cards.

A downgrade of U.S. debt likely will cause interest rates of all kinds to edge up and that would cost the U.S. and consumers billions of dollars.

Copyright 2011 ABC News Radio







ABC News Radio