U.S. loses AAA debt rating from S&P

Standard & Poor's, whose president is Deven Sharma, left, may downgrade U.S. credit. | AP Photos

By JOSH BOAK & CARRIE BUDOFF BROWN | 8/5/11 8:18 PM EDT Updated: 8/5/11 8:40 PM EDT

Standard and Poor’s on Friday downgraded the nation’s top-notch triple-A credit rating, the first downgrade in U.S. history, the ratings agency announced.

“We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA,’” S&P said in a statement.

Continue Reading

POLITICO 44

“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. 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.”

S&P had notified the White House earlier Friday that it planned the downgrade, a senior administration official told POLITICO. The White House challenged the agency’s analysis and said it was off by at least $2 trillion dollars. S & P agreed to withhold a final decision and take another look, the official said.

S&P officials had spent time at the Treasury Department this week, and administration officials were prepared for an announcement to be made after the market close on Friday.

President Barack Obama and congressional leaders had hoped this week’s deal to raise the debt ceiling would stave off any downgrading of the U.S. credit rating – but Standard and Poor’s had left open the door to a downgrade if the final deal didn’t reach budget cuts of $4 trillion. The final deal would cut at least $2.1 trillion over 10 years.

Rumors of a downgrade filtered through a volatile stock market, causing the Dow Jones Industrial average to swing by 416 points as it teetered between losses and gains to close the day up slightly by 0.54 percent.

The possibility of a downgrade overwhelmed the initial surge caused by a government report showing the economy had added 117,000 jobs in July, beating analyst expectations.

With U.S. household net worth totaling about $58 trillion and the national debt slightly more than $14 trillion, the country has the resources to honor its debt, indicating that a downgrade would be a commentary on the sharp political divisions splitting Washington.

House Speaker John Boehner (R-Ohio) was not made aware of a possible downgrade, according to his staff. Other congressional sources indicated they were not notified of the potential downgrade.

politico.

Sphere: Related Content