US stripped of AAA credit rating by S&P as agency blames political weakness

The US government’s credit rating has been lowered to AA+, the first downgrade in modern US history, despite furious lobbying The credit rating agency Standard & Poor’s has stripped the US of its top-notch AAA credit rating, downgrading it to AA+ and warning of further future downgrades because of political and economic uncertainty. The downgrade and negative outlook came late on Friday night, after news surfaced of a furious rearguard attempt by the White House to convince S&P that its calculations were flawed. The move shifts long-term US government debt into the same level as Britain, Japan and other countries, but below that of Canada, Australia and France. As a rule, a lower credit rating means higher borrowing costs for debtor nations. But because of the size of the US and its deep capital markets, it remians to be seen what impact the move will have when financial markets reopen on Monday. Republicans were quick to highlight the downgrade – the first in modern US history – as a humiliation for President Obama. But S&P’s statement explaining the move blamed both parties for the US fiscal mess – and had harsh words for the Republican party for ruling out any taxes increases. “We have changed our assumption … because the majority of Republicans in Congress continue to resist any measure that would raise revenues,” S&P said. S&P also said the budget savings agreed by Congress at the start of the week were too feeble, and blamed political weakness and instability for triggering the downgrade: More broadly, 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. The credit rating agency also said the outlook on its long-term rating was negative, warning that it could lower the long-term further rating to AA within the next two years “if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume”. S&P notified the US Treasury on Friday afternoon that it was planning to downgrade the credit rating, according to government officials, and the company sent a draft of its analysis to the White House. White House officials then claimed to have discovered a $2tn-sized hole in S&P’s calculations, and briefed journalists. But it failed to wring a delay out of the agency, which went ahead with the downgrade. US economy Ratings agencies Obama administration Republicans Market turmoil Economics US politics United States Richard Adams guardian.co.uk

Posted by on August 5, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.