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Wednesday
Apr202011

Obama Administration Asked S&P to Hold Off on New Debt Rating 

Jupiterimages/Thinkstock(WASHINGTON) -- For months, as officials from the ratings agency Standard & Poor's sought information from the Obama administration, Treasury officials -- the ones in charge of selling U.S. debt -- worried that the ratings agency would downgrade its long-term outlook on the United States debt. They went so far as to ask S&P to hold off until President Obama was able to offer a serious proposal to reduce the debt, sources told ABC News.
 
John Chambers, a managing director at Standard & Poor's, tells ABC News that the ratings agency had looked to see how serious the U.S. government was about its debt by primarily focusing on President Obama’s Fiscal Commission report, which was published in December 2011, and President Obama’s FY2012 budget.
 
“The Fiscal Commission report was robust,” Chambers said, “but it was not warmly embraced by the executive or legislative branches of the government.”
 
President Obama put forward his FY2012 budget in February, proposing $1 trillion in deficit reduction over the next decade, which Chambers said the S&P committee found “disappointing.”
 
Three weeks ago, Rep. Paul Ryan, R-Wisc., pledged more than four times that amount -- $4.4 trillion in deficit reduction over 10 years.
 
S&P officials thought these two points of view seemed unbridgeable and prepared to change the long-term rating of U.S. debt from “stable” to “negative.”
 
Obama administration officials asked S&P to hold off on issuing its report until after President Obama and Congress had completed negotiating over the rest of the FY2011 budget, after which the president was planning to make a more serious deficit reduction proposal -- $4 trillion over 12 years -- than had been in his original proposal. Administration officials hoped that would convince the S&P officials that a compromise with Republicans was possible.
 
But while they waited for this presentation from the president, S&P officials saw President Obama and Congress locked in an intense budget negotiation over a relatively paltry $38.5 billion in spending cuts -- one that threatened to shut down the government and only averted at the 11th hour. This “dismayed” S&P officials, sources close to the process said.
 
S&P officials waited until President Obama gave his speech, which Republicans criticized as overly partisan and harsh in tone.
 
“The good news is part of the Republican leadership and the administration have put forward plans with similar fiscal targets,” Chambers said. “However when you look at the content of the proposals and the initial starting positions of this debate they’re pretty far apart.”
 
On Monday, the agency issued its report. The long-term rating would now be negative.
 
"Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable," S&P said in a statement.
 
S&P, notably, does not take a position on how the deficit problem be solved -- on that the agency is agnostic, having praised Germany and the U.K. for their governments’ approaches, which include tax increases.

Copyright 2011 ABC News Radio







ABC News Radio