S&P Considers Downgrading US Bond Rating

Posted July 14th, 2011 at 9:05 pm (UTC-5)
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The powerful credit rating agency Standards and Poors has put the United States on its credit watch list, warning there is a “substantial likelihood” it could downgrade the country's triple-A rating because of the ongoing battle over decreasing the deficit and increasing the borrowing limit.

In a statement Thursday, the rating agency said it believes there is an increasing risk of a “substantial policy stalemate” that would continue even if politicians manage to agree to raise the debt ceiling in the short term. S&P said they may lower the U.S. rating within the next three months if it finds the government has not, or is not close to, achieving “a credible solution” to the problem of the ballooning national debt.

S&P joins Moody's Investors Service, which warned Wednesday that the U.S. risks losing its top credit rating if lawmakers fail to reach a deal. A downgraded U.S. bond rating would likely lead to higher interest rates for U.S. loans.

The White House announced Mr. Obama will hold a press conference Friday morning. He is not expected to hold further negotiations with party leaders until at least Saturday.

Mr. Obama and congressional leaders are in contentious negotiations to raise the $14.3-trillion borrowing limit while also cutting spending. But talks have stalled over disagreements about the need to raise taxes. If the borrowing limit is not raised by August 2, the U.S. may have to stop payments on some of its obligations.

Officials say Mr. Obama concluded Thursday's meeting with congressional leaders — the fifth straight day of the high-level talks — by suggesting they gauge support among their fellow lawmakers for components of a debt deal. Democratic officials told reporters Mr. Obama also reiterated his preference for a “big deal” to reduce the deficit and raise the borrowing limit by up to several trillion dollars each.

Top U.S. financial officials Thursday issued a new round of warnings about the potential catastrophe that awaits if lawmakers fail to raise the country's debt limit in time.

Treasury Secretary Timothy Geithner said Washington needs to meet its financial obligations and “it's time we move.”

Earlier, Federal Reserve Chairman Ben Bernanke told a Senate committee any failure to raise the debt limit would have a “calamitous outcome.” He warned excessive spending cuts could damage the fragile economic recovery.

The Fed chairman said failure to raise the debt ceiling would be a “self-inflicted wound” and would erode global confidence in the United States.

There are also growing calls from businesses and banking firms for a solution.

The head of one of the biggest private U.S. financial firms Thursday told reporters it is “imperative that the debt ceiling be fixed.”

JP Morgan Chase Chief Executive Jamie Dimon said it would be irresponsible for the country to default on its debt because the result could be catastrophic.

A Chinese credit rating agency said Thursday it has placed U.S. sovereign debt on a negative watch. Dagong Global Credit Rating Company says it will downgrade U.S. credit ratings “if there is no significant change in its repayment ability within the period of observation.” China is the biggest buyer of U.S. sovereign debt.