Posted on Aug 08, 2011
Bloomberg Business Week reported on August 6, that Standard and Poor's had downgraded the United States' credit rating from AAA, lowering it one level to AA+ while keeping the outlook at "negative." This is the first time that this has happened and came with criticism that Congress did not do enough to cut spending or raise revenue sufficiently to reduce the budget deficit. Even worse, this rating could go down to AA within 2 years if:
  • spending cuts aren't made as agreed;
  • interest rates go up; or
  • new fiscal pressures create higher debt

The issue of the nation's debt ceiling had been in the news for weeks, with lawmakers at loggerheads over how to resolve the country's rising debt and record budget deficits. Fears of America defaulting on its obligations finally led to an eleventh hour compromise deal, but it now looks like that was not enough. The article quoted an S&P spokesman as saying,

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."

At the same time, Moody's Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day the President signed the bill ending the debt-ceiling impasse. In reactions around the world Japan saw no trust problems with U.S. securities, while Russia said that the S&P downgrade "can be ignored." China, however, said through its official Xinhua News Agency that the U.S. must cure its "addiction" to borrowing. It remains to be seen what this will do to the U.S. economy and interest rates on loans tied to interest rates paid on treasuries.

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