S&P downgrades America's credit rating to AA+
Saturday, 06 August 2011 09:56
Standard & Poor has downgraded the United States’ premium triple-A credit rating for the first time ever.
The credit rating agency has cut the long-term rating to AA+ with a negative outlook, explaining that it has done so over concerns about the US budget deficit.
The agency said that the deficit reduction plan that was finally passed on Tuesday and agreed to raise the debt ceiling by up to $2.4 trillion and agreed spending cuts of $2.1 trillion over the next decade did not go far enough.
Standard & Poor (S&P) had warned the US before the agreement was reached that it may downgrade its credit rating if $4 trillion worth of federal debt cuts were not agreed to be introduced over the next decade.
The downgrade is a blow to President Obama and could raise the cost of US government borrowing and lead to higher interest rates for both businesses and individuals in the US. Washington has reacted by demanding that S&P reverse its decision and accusing the agency of getting its sums wrong.
The other two major credit rating agencies, Fitch and Moody’s, said last night that they have no immediate plans to make changes to the United States credit rating.
International reaction to the decision has been mixed with China reported as saying that it had every right to demand that the US addresses its structural debt problems and ensure the safety of China’s dollar assets. However, officials in Japan and Australia said that a calm response to the decision was required.
S&P said that the US could have averted a downgrade if an agreement to raise the debt ceiling had happened earlier. The agency also said that most of the proposed cuts had not even been decided upon yet, with a Congress committee in November set to make the decision on which areas to cut, opening up the possibility of more indecision and political brinkmanship.
In its report issued yesterday, S&P said: "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 stabilise the government's medium-term debt dynamics.
"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."
S&P also said it may lower the United States long-term credit rating further within the next two years if its actions on its deficit were not deemed to be adequate.
Sign up to the Myfinances.co.uk newsletter to receive the latest financial news direct to your inbox.
Follow Myfinances.co.uk on Twitter: @news_myfinances
Comments
Newsletter sign up