S&P cut the US rating from its top-flight triple-A one notch to AA+, and added a negative outlook to it, saying there was a chance it could be downgraded again within two years if progress is not made cutting the huge government budget gap.
It said the “political brinksmanship” of recent months shows that governance in the country is becoming “less stable, less effective, and less predictable,” raising the risks that it one day might not honour its debt.
It was the first time the US was downgraded since it received an AAA rating from Moody’s in 1917; it has held the S&P rating since 1941.
The rating came after a strong pushback from the White House, which called S&P’s analysis of the economy deeply flawed and politically-based.
A Treasury spokesperson alleged that there was a “two trillion dollar error” in the S&P analysis, arguing that the agency admittedly used the wrong baseline and erred on spending plans and debt projections.
But John Chambers, chairman of the S&P sovereign ratings committee, defended the decision.
“It’s a matter of the medium and long-term budget position of the United States that needs to be brought under control,” he said on CNN.“This is a problem a long time in the making whether this administration and prior administration,” he said.
He pointed to the White House, Democratic and Republican lawmakers battling for months until the country was on the precipice of default last Tuesday before they finally agreed to a deal to raise the nation’s debt ceiling and slash the deficit.
- Chamisa under fire over US$120K donation
- Mavhunga puts DeMbare into Chibuku quarterfinals
- Pension funds bet on Cabora Bassa oilfields
- Councils defy govt fire tender directive
Keep Reading
The fight had sent jitters across the global economy.
A debt downgrade will be a symbolic embarrassment for President Barack Obama, his administration and the United States, and could raise the cost of US government borrowing.
There were also worries that the downgrade would wreak unpredictable havoc in global financial markets where the US dollar has long been the most important currency.
Initial reaction overseas was subdued. An unnamed Japanese government official told Dow Jones Newswires yesterday that Tokyo continued to trust US Treasuries “and their attractiveness as an investment will not change because of this action.”
Australian Prime Minister Julia Gillard sought to calm public nerves, saying that “people should look with confidence at our economic credentials and fundamentals.”
But China said it “has every right” to demand the United States address its debt problem.— AFP
