Saturday, August 6, 2011

United States loses AAA credit rating from S&P

KUALA LUMPUR: Standard & Poor's has lowered its long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

The rating agency has also removed both the short- and long-term ratings from CreditWatch negative.

In a statement Aug 5, S&P said the downgrade reflected its opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what would be necessary to stabilise the government's medium-term debt dynamics.

'More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

'Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilises the government's debt dynamics any time soon.

The outlook on the long-term rating is negative, said S&P.

S&P said it could lower the long-term rating to 'AA' within the next two years if it saw that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than it currently assumes in its base case.


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