US Loses AAA Credit Rating for First Time

Posted August 6th, 2011 at 5:50 am (UTC-5)
Leave a comment

Credit rating agency Standard & Poor's has downgraded the U.S. credit rating for the first time ever, from the top rank of triple-A to double-A-plus.

S&P said it lowered the rating because the deficit reduction plan Congress passed on Tuesday did not go far enough to stabilize the country's debt situation.

The agency said Friday's downgrade reflects its view that the “effectiveness, stability and predictability of American policymaking and political institutions have weakened” to a greater degree than it envisioned several months ago. It said this weakening has taken place at a time of “ongoing fiscal and economic challenges.”

S&P said the outlook on the new rating is “negative,” meaning another downgrade could follow within the next two years.

The U.S. Treasury Department called the S&P judgment “flawed,” saying the agency made a $2 trillion error in its calculation of U.S. deficits. S&P acknowledged the error, but upheld its decision.

U.S. President Barack Obama and Congress reached a deal a few hours before the deadline Tuesday to increase the nation's $14.3 borrowing limit and avoid an unprecedented default on the government's financial obligations. The deal calls for reducing the deficit by more than $2 trillion over 10 years. S&P had called for $4 trillion in savings.

U.S. lawmakers' responses to the lowering of the credit rating reflected party politics. The Senate majority leader, Democrat Harry Reid, said the action by S&P “reaffirms the need for a balanced approach to deficit reduction” that he said would combine spending cuts with revenue-raising measures like ending tax cuts for the wealthiest Americans. Republican Senator Jim DeMint used the news to criticize Tuesday's debt deal, saying it was passed “over conservative objections” and has already had what he called “the obvious effect” of the loss of America's credibility around the world.

The other two major credit rating agencies, Moody's and Fitch, have so far not downgraded the U.S. credit rating.

The S&P decision came on the same day the U.S. Labor Department announced a net gain of 117,000 jobs in July, and a slight decline in the unemployment rate to 9.1 percent. Friday's report was better than economists had predicted.

In his weekly address Saturday, President Obama said the nation's “urgent mission” has to be getting the economy growing faster and creating jobs. He called on Democrats and Republicans in Congress to work together to take steps to spur growth when they return from their recess in September. He promoted moves such as extending tax cuts for working and middle class families and passing long-stalled trade deals with Colombia, Panama and South Korea.

In the weekly Republican address, Representative Michael Grimm of New York said Friday's jobs report shows Mr. Obama's policies are not working. Grimm said the debt limit deal takes a step in the right direction, but is far from perfect. He said the cuts and reforms do not go nearly far enough.

The U.S. is the world's largest economy, but investors have voiced little confidence in the country's sluggish recovery, even with the agreement on the debt ceiling plan.