Global Financial Crisis:
United States loses AAA credit rating from S&P
Saturday 06 August 2011
Credit rating agency Standard & Poor's said today it had downgraded the United States' credit rating for the first time in the history of the ratings.
The agency said it was cutting the country's top AAA rating by one notch to AA-plus.
S&P said it was making the move because the deficit reduction plan passed by the US Congress on Tuesday did not go far enough to stabilise the country's debt situation.
A source familiar with the discussions said the Obama administration believed S&P's analysis contained "deep and fundamental flaws".
S&P said that in addition to the downgrade, it was issuing a negative outlook, meaning that there was a chance it would lower the rating further within the next two years.
It said such a downgrade to AA would occur if the agency saw fewer reductions in spending than Congress and the administration had agreed to make, higher interest rates or new fiscal pressures during this period.
S&P first put the government on notice in April that a downgrade was possible unless Congress and the administration came up with a credible long-term deficit reduction plan and avoided a default on the country's debt.
After months of wrangling and negotiations with the administration, Congress passed this week a debt reduction package that averted a possible default.
In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan.
S&P said it was now "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 stabilises the government's debt dynamics anytime soon".
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