US has its credit rating cut
August 6, 2011 - 11:18AM
The United States' credit rating was cut for the first time when Standard and Poor's lowered it from triple-A to AA+, citing the country's looming deficit burden and weak policy-making process.
Standard and Poor's on Friday revised the nation's rating downwards to a
AA+ with a negative outlook, despite a push back from the White House, which said the rating agency's analysis of the US economy was deeply flawed.
It was the first time the US was downgraded since it first received a triple-A rating from Moody's in 1917; it has held the S&P rating since 1941.
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Moody's and a third ratings agency, Fitch, say they continue to study the deficit plan to see if the US merits being kept in their ranks of triple-A countries.
The blow came after the White House, Democratic and Republican legislators agreed during the week to a deal to raise the nation's debt ceiling after months of wrangling that sent jitters rippling through the global economy still trying to recover from the 2008 recession.
A debt downgrade will be a symbolic embarrassment for President Barack Obama, his administration and the Americans, and could raise the cost of US government borrowing.
Since the dollar and US Treasury bonds are so central to world trade and finance, a downgrade theoretically could rock the global economy, which is already being battered by the eurozone crisis.
But some analysts have questioned whether a ratings cut would impact demand for US debt, have dismissed the raters as having low credibility, and questioned whether the markets would take much notice.
Ratings agencies Moody's and Fitch both reaffirmed their triple-A rating of US debt shortly after Obama signed a bill raising the debt ceiling on Tuesday.
The downgrade technically signalled that it is more likely than before that the United States could renege on its debts.
There was no immediate comment from the White House or the Treasury on the reports.
But a source close to the discussions said: "There are deep and fundamental flaws with the S&P analysis."
S&P is considered the most influential of the three major rating agencies.
It has been the most aggressive in moving towards a US downgrade. On April 18, S&P lowered its outlook attached to the triple-A rating from "stable" to "negative", citing the absence of a credible plan for reducing Washington's huge fiscal deficits.
In July, during the protracted standoff over raising the government's debt ceiling between Obama and Republicans, S&P placed the United States on credit watch and warned there was "at least" a one-in-two chance that it would cut the rating within 90 days.
S&P also suggested any deficit plan needed to trim about $US4 trillion ($A3.84 trillion) over 10 years; the plan that has passed only envisages cuts of up to $US2.4 trillion.
There are currently 17 nations boasting a triple-A debt rating from S&P along with three other territories - Hong Kong, Guernsey and the Isle of Man.
Moody's, the oldest credit agency, placed the US on a downgrade watch on July 13 and upheld its rating on Tuesday after congress passed the last-minute deal which avoided a debt default.
But Moody's also added a "negative" outlook to its rating, warning it could still downgrade the United States if the deficit-slashing plan goes astray, if fiscal discipline weakens, or if growth deteriorates significantly.
Fitch opened a review of the US rating on June 8 and said it would be completed by the end of August.
After the debt deal was clinched, Fitch said the United States would keep its AAA rating but warned it was under review.
AFP
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http://www.smh.com.au/business/us-has-its-credit-rating-cut-20110806-1ig8p.html#ixzz1UDLYlNX3
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