Thread: S&P officials defend US credit downgrade

S&P officials defend US credit downgrade following criticism from administration

By Associated Press, Updated: Saturday, August 6, 1:21 PM

WASHINGTON — Top officials of Standard & Poor’s on Saturday defended their decision to downgrade the U.S. government’s credit rating after the Obama administration called the move a hasty decision based on faulty math.

The administration had tried to head off the downgrade announced late Friday. It told S&P that the agency had made wrong calculations about the federal budget.

But S&P officials on Saturday insisted that they had come to a reasoned conclusion that the U.S. will have difficulty getting its soaring deficits under control. And they said S&P had given plenty of warnings that a downgrade could be coming if Congress and the Obama administration did not produce a credible deficit-cutting plan.

David Beers, global head of sovereign ratings at S&P, said the rating agency was concerned that the deal on the budget reached last weekend fell short of what S&P felt was needed. S&P was looking for $4 trillion in budget cuts over 10 years. The plan that passed Congress on Tuesday after months of haggling would achieve $2.1 trillion to $2.4 trillion in cuts over that time.

Another S&P concern was that lawmakers and the administration might fail to make those cuts because Democrats and Republicans are divided over how to implement them. Republicans are refusing to raise taxes in any deficit-cutting deal while Democrats are fighting to protect giant entitlement programs such as Social Security and Medicare.

S&P so far is the only one of the three largest credit rating agencies to downgrade U.S. debt. Moody’s and Fitch have both issued warnings of possible downgrades but for now have retained their AAA ratings.

Asked when the United States might regain its AAA credit rating, Beers said S&P would take a look at any budget agreements that achieve bigger deficit savings. But the history of other countries such as Canada and Australia who saw cuts in their credit ratings, shows that it can take years to win back the higher ratings.

Sources: http://www.washingtonpost.com/business/ ... story.html

http://moneywatch.bnet.com/investing/ne ... e/6273504/

related

Why S&P Has No Business Downgrading the U.S.
http://robertreich.org/post/8542550924

Standard & Poor’s downgrade of America’s debt couldn’t come at a worse time. The result is likely to be higher borrowing costs for the government at all levels, and higher interest on your variable-rate mortgage, your auto loan, your credit card loans, and every other penny you borrow.

Why did S&P do it?

Not because America failed to pay its creditors on time. As you may have noticed, we avoided a default.

And not because we might fail to pay our bills at the end of 2012 if tea-party Republicans again hold the nation hostage when their votes will next be needed to raise the debt ceiling. This is a legitimate worry and might have been grounds for a downgrade, but it’s not S&P’s rationale.

S&P has downgraded the U.S. because it doesn’t think we’re on track to reduce the nation’s debt enough to satisfy S&P — and we’re not doing it in a way S&P prefers.

Here’s what S&P said: “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.â€

related

Some comments about the debt rating drop
http://www.cbsnews.com/stories/2011/08/ ... 9086.shtml

(AP) Reaction to the first-ever downgrade of the nation's AAA credit rating:

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"The dysfunctional status of Washington has resulted in the first ever downgrade of the credit rating of the United States' debt by Standard and Poor's. Only time will tell whether this will have an adverse effect on prevailing interest rates paid on new U.S debt. If it does, it will only serve to compound our current economic challenges and longer-term fiscal outlook." — Former Comptroller General David Walker.

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"The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners. This makes the work of the joint committee all the more important, and shows why leaders should appoint members who will approach the committee's work with an open mind — instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding." — Senate Majority Leader Harry Reid.

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"This is a wake-up call for Washington to get serious about fixing our debt problem. Many of us have long argued that Congress must make the hard choices to address this issue immediately, and I can only hope this helps others in Washington and around the country understand our urgency. Substantial, meaningful reform that results in a pro-growth tax system, entitlement reforms and spending reductions must be implemented as soon as possible." — Republican Sen. Saxby Chambliss of Georgia.

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"The deal Congress just passed over conservative objections has already had its obvious effect, the loss of America's credibility around the world. The deal was not a serious attempt to solve our spending and debt problem, it was a political solution meant to kick the can down the road. The only real solution to our spending and debt crisis was Cut, Cap & Balance that the president rejected out of hand." — Republican Sen. Jim DeMint of South Carolina.

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"As S&P stated, 'The transparency and accountability of institutions bear directly on sovereign creditworthiness because they reinforce the stability and predictability both of political institutions and the political framework.' The American people are watching to see if the bipartisan Joint Committee will develop a plan to responsibly reduce the deficit in a balanced way while promoting economic growth and creating jobs." — House Democratic leader Nancy Pelosi.

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"Tonight's decision by S&P to downgrade our credit rating to AA+ is a historically significant and serious event for the United States. The United States has had a AAA credit rating since 1917. That rating has endured the great depression, World War II, Korea, Vietnam and the terrorist attacks on 9/11. This president has destroyed the credit rating of the United States through his failed economic policies and his inability to control government spending by raising the debt ceiling." — GOP presidential candidate Michelle Bachmann, a Minnesota congresswoman.

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"America's creditworthiness just became the latest casualty in President Obama's failed record of leadership on the economy. Standard & Poor's rating downgrade is a deeply troubling indicator of our country's decline under President Obama. His failed policies have led to high unemployment, skyrocketing deficits, and now, the unprecedented loss of our nation's prized AAA credit rating." — GOP presidential candidate Mitt Romney, former Massachusetts governor.