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Monday
Aug012011

Debt Compromise Reached, but Will US Lose Its Credit Rating? 

ABC News(NEW YORK) -- Now that Congressional leaders and the president have struck a budget deal that, if passed by Congress, would prevent the U.S. government from defaulting, the country's pristine credit rating could still suffer a blow, raising the specter of an interest rate spike and a devastating ripple effect throughout the economy.

Earlier this month, the credit rating agency Standard & Poor's warned that the U.S. risked a downgrade to AA status if Congress doesn't lift the debt ceiling and reduce the total debt by $4 trillion over the next decade. Unfortunately, that risk remains even if the deal manages to navigate a rocky road through  Congress.

Viewed by politicians and pundits alike as overstepping, Standard & Poor's has come under fire for playing politics, and, some charge, they and other credit agencies should not wield so much power to determine the financial future of the country, particularly given the role they played in the credit crisis.

In a rare interview, the man who heads the global team at Standard & Poor's told ABC News' Jim Sciutto that reaching an agreement in Congress on a debt ceiling increase is hardly the "end of America's budgetary problems."

"If America keeps on doing what it's doing, which is having deficits of the kind it has at the moment, clearly, it's going to be looking out of place in that AAA-rated peer group," said Paul Coughlin, executive managing director of corporate and government ratings.

Asked if his company is interfering in politics, Coughlin told ABC News last week that Standard & Poor's is doing what ratings agencies do. "We are making real world observations about risk," he said. "We're just a rating agency, we just grade debt according to its relative safety or riskiness."

In the case of the U.S. government, which is rated at the top of the scale, he said, ratings agencies are looking to see how much "buffer of safety is there."

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