WASHINGTON: The United States' credit rating was cut for the first time ever Friday 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 revised the nation's rating downwards to a AA+ with a negative outlook, despite a push back from the White House which said its analysis of the US economy was deeply flawed.
(Read: Analysis: Fear of a second global recession hits KSE)
It was the first time the US was downgraded since it first received a triple-AAA rating from Moody's in 1917; it has held the S&P rating since 1941.
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 AAA countries.
The blow came after the White House, Democratic and Republican lawmakers finally agreed on Tuesday to a deal to raise the nation's debt ceiling after months of wrangling which 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 United States, 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 AAA rating of US debt shortly after Obama signed a bill raising the debt ceiling on Tuesday.
The downgrade technically signaled 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 which also include Moody's and Fitch.
It has been the most aggressive in moving towards a US downgrade. On April 18, S&P lowered its outlook attached to the AAA 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 some $4 trillion over 10 years; the plan that has passed only envisages cuts of up to $2.4 trillion.
There are currently 17 nations boasting a AAA 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 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.
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@Afridi: Is it true that Paki receive US$1.5 billion from this bankrupt country annually? If true, then yes Paki is responsible.
@G. Din: Thanks for explaining the credit rating system. It is just one of the three who themselves did not do their math right. This is all on paper and there is not going to be any change. The per capita income in the US still remains the same and many times more than that of say China. It is all US internal politics and it would bounce right back after a few cosmetic changes. @Reality is a midget: Whether the Europeans rejoice or not, but the fact remains that they are all Nato members or dying to be one. There has not been any war just or not, the Europeans have gone with the US in the last 70 years. Despite all their "talk" even Russia and China have never voted against any war acts of the US in modern times. These "brave" and independent countries simply go with the US in Security Council or abstain but never oppose/veto any US invasion. Cheers, and regards, Mirza
Does this mean Pak credit rating downgraded Aautomatically to FFF- ?
I am not amazed at all after reading this news as the downfall in US economy was expected any time after 9/11 when the terrorists attacked Word Trade Towers and the Pentagon.
Though the down gradation of US economy is not due to the terrorists attacks on US soil, but the sole reason is of US revenge after 9/11 attacks, when it attacked Afghanistan and then Iraq.
Billions of US Dollars of US tax payers have been spent by US Government on war on terror after 9/11 attacks. The money was spent as it was not the hard earned money of US tax payers but it was just easy money coming and going.
Economically US have already collapsed, but this is a sorrow state of affairs. The onus lies with the Republicans and not on the Democrats.
My heart goes out for the poor US citizens who have all the right to choose the members of the Congress but do not have the authority to make the government accountable.
It is very sad news for the only super duper economic and military power in the world. I wonder if USA is not going to finally collapse like the former Soviet Union.
God Bless America.
the us government should closs there abroad military bases it will save them billions of $
This is bad news for the whole world since all major currencies of the world are linked directly or indirectly to the American dollar. Hope another recession is not in offing otherwise it will result in downfall of business houses, banks big or small and loss of jobs all over the world.
If Americans do not change their behavior or policies, it could be beginning of their end as super power. They are unwilling to tax their rich but spend trillions of borrowed money on useless wars and defense equipment. If they don't change their course, I think this will be their undoing....
LOL...so who is going to bail out the USA? I think China
Good job Obama - you have become the first president in US history under whose watch the US lost its AAA credit rating.
For those who are rejoicing at this apparent discomfort of America and jumping up and down in celebration, remind yourself that: 1. S&P is just one of the three such agencies. 2. S&P was the one which gave high credit ratings to junk bonds which led the last melt-down of financial markets in America. So, S&P does not have the last word. 3. S&P has already been accused of miscalculating the national debt of America. So, if anything, it is S&P which is under the cloud. 4. For you own sake, pray that the US economy is not as bad as this connotes. If indeed it is, you should be more worried than the Americans for it surely spells your own death knell!
Pakistan is actually doing better than most of the world http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.economist.com%2Fcontent%2Fglobaldebtclock&h=VAQBnGK1qAQDXfK4GiNQamUgwZ-9BMvgd9nlLdXq2pvxkLg
Only people who are happy are people against nation states. Soon IMF will take start dictating terms to US using US money. Shadow government assault on nation states to continue till all are nations are vassal of bankers, sounds far fetched but this is the third stage mentioned in hadees. The beginning of the end.
It's first but for sure not last......let's have a global currency
Again Pakistani would be responsible for this going down the drain from AAA
usa and its pet media over the decades were branding countries across the globe as failed states or evil asix of power.over the last decade they even branded pakistan as failed state.but usa failed to realise that it was not pakistan which was failing but it was usa which was failing and now usa is on right path ie path of its own doom...Rome is falling.
So what do we learn? In a war, no one wins. Had Americans would have stayed put from Iraq and finished their job in Afghanistan, they would've been doing well off.
@Mirza: Mirza Ashok, you will be surprised that folks in Europe are a lot more happy about this news than anyone else. The unfortunate fact remains that no one like the US in general.
somehow Zaid Hamid will take credit for this.
Who rates the Rating Agencies ??
Republicans have done well the take the public's mind off of the fact the obama got osama now all they remember is under obama's presidency they lost the AAA ratings.
Bye bye, America.
A good news for some Pakistani rightwing leaders and their apologists.