This is horrible news.
The U.S. has lost its top-notch AAA credit rating from Standard & Poor’s.S&P cut the long-term U.S. credit rating by one notch to AA+ on concerns about the government’s budget deficits and rising debt burden.
The move is likely to raise borrowing costs eventually for the U.S. government, companies and consumers.
‘The downgrade reflects our opinion that the fiscal consolidation plan (falls) short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,’ an S&P spokesman said.
It follows a fierce battle in Congress over spending cuts and raising taxes to reduce the debt burden and allow the statutory borrowing limit to rise.
President Barack Obama signed legislation on Tuesday designed to reduce the fiscal deficit by $2.1trillion over 10 years.
But that was well short of the $4trillion in savings S&P had called for as a good ‘down payment’ on fixing America’s finances.
The political gridlock and the failure to seriously address U.S. long-term fiscal problems came against the backdrop of slowing economic growth.
It also led to the worst week in the U.S. stock market for two years.
The S&P 500 stock index fell 10.8 per cent in the past 10 trading days on concerns that the U.S. economy may head into another recession.
There are also fears the European debt crisis has been growing worse as it spreads to Italy.
U.S. Treasury bonds, once seen as the world’s safest, are now rated lower than bonds issued by countries such as Britain, Germany and France.
S&P said the outlook on the new U.S. credit rating is ‘negative’ – a sign that another downgrade is possible in the next 12 to 18 months.
The impact of S&P’s move was tempered by a decision from Moody’s Investors Service this week that confirmed, for now, the U.S. AAA rating.
Fitch Ratings said it is still reviewing the rating and will issue its opinion by the end of the month.
‘It’s not entirely unexpected. I believe it has already been partly priced into the dollar,’ said Vassili Serebriakov, of Wells Fargo in New York.
‘We expect some further pressure on the U.S. dollar, but a sharp sell-off is in our view unlikely.’
‘One of the reasons we don’t really think foreign investors will start selling U.S. Treasuries aggressively is because there are still few alternatives to the U.S. Treasury market in terms of depth and liquidity.’
S&P’s move is also likely to concern foreign creditors – especially China, which holds more than $1trillion of U.S. debt.
Beijing has repeatedly urged Washington to protect its U.S. dollar investments by addressing its budget problem.
The downgrade could add up to 0.7 of a percentage point to U.S. Treasuries’ yields over time, increasing funding costs for public debt by some $100billion, U.S. securities industry trade group SIFMA said.
S&P had placed the U.S. credit rating on review for a possible downgrade on July 14.
It was on concerns that Congress was not adequately addressing the government fiscal deficit of about $1.4trillion this year, or about 9.0 per cent of gross domestic product – one of the highest since World War II.
SMH… To say this news sucks is an understatement. Them GOP a$$holes didn’t want to lower tax breaks for corporations and the rich and now see what happens.
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