US Becomes Sub-Prime Borrowers as S&P Drops the US Credit Rating
It's official, we are now sub-prime borrowers!
Today S&P lowered the United States' credit rating to AA+ from it's AAA rating. The pristine AAA rating is held by Britain, France and Germany's debt. This downgrade reflects S&P's opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to fell short of what they wanted to see to stabilize the government's medium-term debt dynamics. S&P also says that the downgrade reflects their 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 they envisioned when they assigned a negative outlook to the rating on April 18, 2011. Since then, they changed their view of the difficulties in bridging the GOP and Dem's differences over fiscal policy, which gives them a bad feeling about the capacity of Congress and the Administration to be able to leverage this week's agreement a broader fiscal consolidation plan that would stabilizes the government's debt dynamics any time soon. They give a negative long-term rating and they warn that can lower the rating to AA within the next two years if the US doesn't make serious reduction in spending, initiated higher interest rates, or other measures that could change the US' debt trajectory.
Back on April 18 Reuters reported that S&P threatened to cut U.S. credit rating if the US didn't slash the yawning federal budget deficit within two years.
On June 2, MarketWatch reporting that the outlook on the U.S. government’s Triple-A rating could be cut if "substantial" deficit reduction hasn’t occurred.
The writing was on the wall that rating agencies were ready to lower the US' credit rating, so this should be of no surprise.
You can access S&P's full explanation here.
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