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S&P Downgrades the US' Credit Rating S&P Downgrades the US' Credit Rating

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ECONOMY

S&P Downgrades the US' Credit Rating

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(Photo illustration by Chet Susslin)

In an unprecedented move in U.S. history, Standard & Poor's on Friday downgraded the federal government's credit rating from AAA to AA-plus.

The United States never before had lost its pristine AAA rating. S&P's action follow reaffirmations of the government's AAA rating earlier this week—following the enactment of the debt ceiling compromise plan—by the other two ratings agencies, Fitch Ratings and Moody's.

 

(RELATED: S&P Downgrades the U.S.—But Why?)

But S&P found the plan to be inadequate.

"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," according to an S&P press release.

 

S&P also was not impressed by the debt ceiling stalemate. As a result, the agency is "pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon."

S&P also has a negative, long-term outlook on the rating, and threatened a downgrade to AA if there are fewer spending cuts, higher interest rates, or new fiscal pressures.

The credit of the United Kingdom, Germany, Australia, Singapore, Norway, among others, is now rated higher by S&P than that of the U.S.

The downgrade is sure to send shockwaves through global markets, beginning with the Asian markets that open on Sunday evening. Friday's action caps off Wall Street's worst week since November 2008. Since Monday, the Dow Jones Industrial Average has lost 5.7 percent of its value.

 

Reaction to the downgrade came swiftly from both sides of the aisle, though the White House was notably silent.

“The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners," Senate Majority Leader Harry Reid, D-Nev., said in a statement.

“This decision by S&P is the latest consequence of the out-of-control spending that has taken place in Washington for decades," said House Speaker John Boehner, R-Ohio, in a statement. "The spending binge has resulted in job-destroying economic uncertainty and now threatens to send destructive ripple effects across our credit markets."

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