Standard & Poor’s Downgrades U.S. Government Debt Rating to Negative


Monday April 18th, 2011   •   Posted by David Theroux at 1:46pm PST   •  

In “S&P Cuts U.S. Ratings Outlook to Negative,” Damian Paletta at the Wall Street Journal reports that the influential firm Standard & Poor’s has just “for the first time lowered its outlook on the U.S. government’s debt to ‘negative’ from ‘stable.’”

A stark warning from a credit-rating firm about the U.S. government’s fiscal problems stoked concern on Wall Street and in Washington on Monday, pushing global stock markets lower and intensifying political divisions about the best way to tackle the country’s growing deficits.

Both the Obama administration and House Republicans scrambled to gain leverage from a new report by Standard & Poor’s, which for the first time lowered its outlook on the U.S. government’s debt to “negative” from “stable.”

While S&P didn’t change its triple-A bond rating for the U.S. government, the move was enough to send the Dow Jones Industrial Average tumbling almost 250 points at one point Monday.

S&P questioned whether the White House and Republicans would be able to reach an agreement before the 2012 presidential elections on a plan to rein in deficits. This year’s shortfall is projected to be about $1.5 trillion, roughly 10% of the country’s gross domestic product.

The S&P analysis didn’t offer any new insight into the nation’s fiscal plight or partisan differences about how to solve it, but served as a reminder that investors may not always be as patient as they have been about U.S. deficits.

The U.S. debt now stands at $14.2 trillion and is expected to balloon in part because of rising costs for health care, retirement and other so-called entitlement programs, and the interest costs on existing debt. S&P said that even if a short-term deal is reached to contain deficits, any agreement could later be undone by politicians.

Administration officials, who were first alerted to the report on Friday, questioned its conclusions but said it validated their efforts to broker a bipartisan deal to address the debt.

“Any call for a bipartisan agreement on deficit reduction, on fiscal reform, is a welcome one, and in that context, I think that it adds to what we believe is some momentum towards that end,” White House spokesman Jay Carney said.

Republicans, who control the House of Representatives, said the report reaffirmed their demands that deficits be addressed immediately, and that any deal to raise the debt ceiling be packaged with other changes meant to cut spending.

“As S&P made clear, getting spending and our deficit under control can no longer be put off for another day, which is why House Republicans will only move forward on the President’s request to increase the debt limit if it is accompanied by serious reforms that immediately reduce federal spending and end the culture of debt in Washington,” said House Majority Leader Eric Cantor (R., Va.).


For the full article, please click here.




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