Image: NYT Syndication
US credit rating cut for first time ever!!!
NEW YORK (Reuters) – The United States lost its top-notch AAA credit rating from Standard & Poor’s on Friday, in a dramatic reversal of fortune for the world’s largest economy.
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.
U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.
The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.
(Reporting by Walter Brandimarte; Editing by Jan Paschal)
Standard & Poor’s took the unprecedented step of downgrading the U.S. government’s “AAA” sovereign credit rating Friday in a move that could send shock waves through global. The following is a press release from Standard & Poor’s:
– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.
– We have also removed both the short- and long-term ratings from CreditWatch negative.
– 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 stabilize the government’s medium-term debt dynamics.
The United States’ credit rating has been cut for the first time ever, with Standard and Poor’s lowering it from AAA to AA+, citing the country’s looming debt and deficit burden.
S&P attached a “negative outlook” to the new rating, while government sources involved in the negotiations with the agency attacked its analysis as deeply flawed.
“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,” S&P said in a statement.
“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.”
Well, so much for the conspiracies. S&P has just released a scathing critique of the total chaos that this country’s government has become. “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.” What to expect on Monday: “ it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.” And why all those who have said the downgrade will have no impact on markets will be tested as soon as Monday: “On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.” Translation: unpredictable consequences: you are welcome!
One of the top credit rating agencies, Standard & Poor’s, has downgraded the United States’ top-notch AAA rating.
S&P cut the long-term US credit rating by one notch to AA+ with a negative outllook, citing concerns about growing budget deficits.
S&P said it was because the deficit reduction plan passed by Congress on Tuesday did not go far enough.
Washington was locked in months of acrimonious partisan bickering over a bill to raise the US debt ceiling.
As rumours swirled earlier about the downgrade, unnamed US officials had told US media that S&P’s analysis of the US economic situation was deeply flawed.