S&P Defends US Credit Downgrade

Posted August 6th, 2011 at 9:15 pm (UTC-5)
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Standard & Poor's is standing firm on its decision to downgrade the U.S. credit rating amid criticism from U.S. officials that the downgrade was hasty and based on false information.

S&P officials on Saturday defended their decision to drop the credit rating from the top rank of triple-A to double A-plus. They blamed Congress for months of political haggling over a deficit reduction deal that they say did not go far enough. The deal calls for reducing the deficit by more than $2 trillion over 10 years. S&P had called for $4 trillion in savings.

The credit agency also questioned whether deeply divided U.S. lawmakers will be able to implement the plan.

The U.S. Treasury Department criticized S&P's decision, calling the rating agency's judgment “flawed.” It cited a $2 trillion error in its calculation of U.S. deficits over the next decade. S&P acknowledged the error, but upheld its decision.

The other two major credit rating agencies, Moody's and Fitch, have so far maintained the U.S. triple-A rating. The S&P move 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.

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

A White House statement issued Saturday called on elected leaders to “do better” following the downgrade, calling on lawmakers to put their partisan differences aside in order to strengthen the U.S. economy.

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 refuse 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.