US credit rating downgraded

Sky News – August 6, 2011

Credit rating agency Standard and Poor’s has downgraded the United States’ credit rating for the first time in the history of the ratings.

The country’s top AAA rating – which it has held since 1917 – now stands one notch lower, at AA+.

Standard and Poor’s (S&P) said it made the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilise the debt situation in the US.

To add to the US’ woes, the agency has also issued a negative outlook, meaning there is a chance it will lower the rating further within the next two years.

The downgrade could have several consequences for normal Americans.

If buyers are scared away from US debt, the interest rate paid on US bonds, notes and bills have to rise to attract buyers.

This in turn could trickle down to mortgage holders and those wanting to take out loans on big-ticket items like cars.

The US government is reported to have fought the downgrade, with a source close to discussions saying the agency’s analysis contained “deep and fundamental flaws.”

S&P had sent the government a draft document in the early afternoon on Friday and, after examining the numbers, the government challenged the analysis.

In a statement, the US Treasury said: “A judgment flawed by a £1.2trn ($2trn) error speaks for itself.”

The US has been on notice from S&P since April, when they were told a downgrade was possible unless Congress and the administration came up with a credible long-term debt reduction plan.

Congress passed such a package at the 11th hour earlier this week, narrowly avoiding a default.

The two other main credit agencies, Moody’s Investor Service and Fitch, also warned the US it faced a downgrade.

Moody’s has said the US will keep its AAA rating for now, but that it might still lower it in the future.

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