US loses AAA rating for first time

Standard and Poor lowers US rating from triple-A to AA+, citing looming deficit burden, weak policy-making process.

Afp August 06, 2011
US loses AAA rating for first time

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.


Incredible | 12 years ago | Reply

@Afridi: Is it true that Paki receive US$1.5 billion from this bankrupt country annually? If true, then yes Paki is responsible.

Mirza | 12 years ago | Reply

@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

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