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http://finance.yahoo.com/news/SampP-downgrades-US-credit-apf-21
The United States has lost its coveted top AAA credit rating.
Credit rating agency Standard & Poor's on Friday downgraded the nation's
rating for the first time since the U.S. won the top ranking in 1917. The
move came after Congress haggled over budget cuts and the nation's borrowing
limit -- and failed to cut enough government spending to satisfy S&P. The
issue has contributed to convulsions in financial markets.
The drop in the rating by one notch to AA-plus was expected. The three main
credit agencies, which also include Moody's Investor Service and Fitch, had
warned during the budget fight that if Congress did not cut spending far
enough, the country faced a downgrade. S&P said that it is making the move
because the deficit reduction plan passed by Congress on Tuesday did not go
far enough to stabilize the country's debt situation. Moody's said Friday it
was keeping its AAA rating on the nation's debt, but that it might still
lower it.
One of the biggest questions after the downgrade was what impact it would
have on already nervous investors. Many financial analysts said investors
were expecting a downgrade. But some selling was expected when stock trading
resumed Monday morning. The Dow Jones industrial average fell 699 points
this week, the biggest weekly point drop since October 2008.
"I think we will have a knee-jerk reaction on Monday," said Jack Ablin,
chief investment officer at Harris Private Bank.
One fear in the market has been that a downgrade would scare buyers away
from U.S. debt. If that were to happen, the interest raid paid on U.S. bonds
, notes and bills would have to rise to attract buyers. However, even
without its AAA rating, U.S. debt is seen as one of the safest investments
in the world. And investors clearly weren't being scared away this week.
While stocks were plunging, investors were buying Treasurys. The yield on
the 10-year note, which moves opposite its price, fell to a low of 2.39
percent on Thursday.
The government fought the downgrade. Administration sources familiar with
the discussions contended that the S&P analysis was fundamentally flawed.
They spoke on condition of anonymity because they weren't authorized to
discuss the matter publicly. S&P had sent the administration a draft
document in the early afternoon Friday and the administration, after
examining the numbers, challenged the analysis.
In a statement, Treasury said, "A judgment flawed by a $2 trillion error
speaks for itself."
S&P said that in addition to the downgrade, it is issuing a negative outlook
, meaning that there was a chance it will lower the rating further within
the next two years. It said such a downgrade to AA would occur if the agency
sees smaller reductions in spending than Congress and the administration
have agreed to make, higher interest rates or new fiscal pressures during
this period.
In its statement, S&P said that it had changed its view "of the difficulties
of bridging the gulf between the political parties" over a credible deficit
reduction plan.
S&P said it was now "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 stabilizes the government's debt
dynamics anytime soon."
The United States has lost its coveted top AAA credit rating.
Credit rating agency Standard & Poor's on Friday downgraded the nation's
rating for the first time since the U.S. won the top ranking in 1917. The
move came after Congress haggled over budget cuts and the nation's borrowing
limit -- and failed to cut enough government spending to satisfy S&P. The
issue has contributed to convulsions in financial markets.
The drop in the rating by one notch to AA-plus was expected. The three main
credit agencies, which also include Moody's Investor Service and Fitch, had
warned during the budget fight that if Congress did not cut spending far
enough, the country faced a downgrade. S&P said that it is making the move
because the deficit reduction plan passed by Congress on Tuesday did not go
far enough to stabilize the country's debt situation. Moody's said Friday it
was keeping its AAA rating on the nation's debt, but that it might still
lower it.
One of the biggest questions after the downgrade was what impact it would
have on already nervous investors. Many financial analysts said investors
were expecting a downgrade. But some selling was expected when stock trading
resumed Monday morning. The Dow Jones industrial average fell 699 points
this week, the biggest weekly point drop since October 2008.
"I think we will have a knee-jerk reaction on Monday," said Jack Ablin,
chief investment officer at Harris Private Bank.
One fear in the market has been that a downgrade would scare buyers away
from U.S. debt. If that were to happen, the interest raid paid on U.S. bonds
, notes and bills would have to rise to attract buyers. However, even
without its AAA rating, U.S. debt is seen as one of the safest investments
in the world. And investors clearly weren't being scared away this week.
While stocks were plunging, investors were buying Treasurys. The yield on
the 10-year note, which moves opposite its price, fell to a low of 2.39
percent on Thursday.
The government fought the downgrade. Administration sources familiar with
the discussions contended that the S&P analysis was fundamentally flawed.
They spoke on condition of anonymity because they weren't authorized to
discuss the matter publicly. S&P had sent the administration a draft
document in the early afternoon Friday and the administration, after
examining the numbers, challenged the analysis.
In a statement, Treasury said, "A judgment flawed by a $2 trillion error
speaks for itself."
S&P said that in addition to the downgrade, it is issuing a negative outlook
, meaning that there was a chance it will lower the rating further within
the next two years. It said such a downgrade to AA would occur if the agency
sees smaller reductions in spending than Congress and the administration
have agreed to make, higher interest rates or new fiscal pressures during
this period.
In its statement, S&P said that it had changed its view "of the difficulties
of bridging the gulf between the political parties" over a credible deficit
reduction plan.
S&P said it was now "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 stabilizes the government's debt
dynamics anytime soon."
