Barefoot Investor: U.S. triple-A debt rating cut by Standard & Poor’s

The United States late Friday lost its triple-A debt rating from Standard & Poor’s for the first time in its history, with the credit-rating agency saying the political system of the world’s top economy has become less stable and that budget cutting announced earlier this week didn’t go far enough.

S&P lowered its rating on the U.S. by a notch to AA+ and, to compound the embarrassment, said the outlook is negative as well, as it threatened another reduction in two years. The rating agency said the deal reached by lawmakers to cut the federal deficit by an estimated $2.1 trillion over a decade didn’t go far enough, and “America’s governance and policy making becoming less stable, less effective, and less predictable than what we previously believed."

S&P, a unit of McGraw-Hill, had said in July that $4 trillion in cuts over a decade would be required if the U.S. were to keep its triple-A rating. The U.S. has over $14 trillion in debt, and, even after the deal reached this week, is anticipated to add another $7 trillion over the next decade.

By S&P’s analysis, the U.S. debt-to-GDP ratio will hit 85% by 2021.

The market impact of the S&P move is uncertain, but the wild 416-point swing in the Dow Jones Industrial Average on Friday was in part influenced by rumors of such a move. The political ramifications also were explosive, with both sides quickly taking to cable news stations to blame each other for the U.S. downgrade.

Fellow rating agencies Moody’s and Fitch Ratings have not been as critical as S&P about U.S. finances, as both have affirmed their triple-A ratings. (Market Watch)


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