Obama: US ‘Must Do Better’ After Credit Downgrade

Posted August 6th, 2011 at 12:30 pm (UTC-5)
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U.S. President Barack Obama says elected leaders “must do better” following an unprecedented downgrade of the country's credit rating.

A White House statement Saturday called the deal to reduce the country's massive deficit while avoiding a default an important first step. But it called on lawmakers to put their partisan differences aside in order to strengthen the U.S. economy.

The White House reaction follows Friday's announcement by credit rating agency Standard & Poor's that it had downgraded the U.S. credit rating from the the top rank of triple-A to double-A-plus.

It was the first time since 1917 that U.S. debt lost its triple-A rating, and S&P warned another downgrade could come in the next couple of years.

S&P said the debt reduction plan adopted by Congress and signed by the president did not go far enough. It also criticized what it called “political brinkmanship” which showed America's policy-making bodies have become “less stable, less effective, and less predictable.”

Despite the warning, lawmakers used the downgrade for more political sparring.

The Speaker of the U.S. House of Representatives, Republican John Boehner, blamed the downgrade on decades of reckless spending, accusing leading Democrats of refusing to make “tough choices.”

Democratic Senate Majority Leader Harry Reid said the move “reaffirms the need for a balanced approach to deficit reduction,” including an end to tax breaks for the wealthiest Americans – something Republicans refused to accept.

Republican Senator Jim DeMint, a favorite of the conservative Tea Party movement, said the downgrade showed the debt deal signed by President Obama has already cost the U.S. some of its credibility.

Mr. Obama and Congress reached a deal hours before the deadline this past Tuesday to increase the nation's $14.3 trillion 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.

On Friday, the U.S. Treasury Department criticized S&P's decision, calling the rating agency's judgment “flawed.” Treasury officials said the agency made a $2 trillion error in its calculation of U.S. deficits. S&P acknowledged the error, but upheld its decision.

The other two major credit rating agencies, Moody's and Fitch, have so far not downgraded the U.S. credit rating. But the move by S&P raises questions about the impact on investors, who have long seen U.S. debt, in the form of bonds or treasuries, as one of the safest investments in the world.

The U.S. central bank advised banking organizations that even with the downgrade, the risk associated with U.S. treasuries will not change.

Other private economists say investing in U.S. debt remains safe, though they caution that the downgrade could push up borrowing costs for consumers and companies needing loans.