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March 8th, 2011 |

Author: Gavin

S&P strips US off top-grade credit rating

President Barack Obama met the Treasury Secretary Timothy Geithner before leaving for Camp David last afternoon and the officials of the Department of Treasury said the decision of S&P to downgrade US’s rating was flawed.

Obama reached a deal with the US Congress on Tuesday, hours before a deadline set by the Treasury Department, to increase the country’s USD 14.3 trillion borrowing limit. The Treasury had warned that the country would not be left with any cash to meet its payment obligations and could face the risk of defaulting on its debt if the ceiling was not increased by August 2. As per the deal, US wants to reduce its deficit by over USD 2 trillion over the next 10 years, but S&P said at least USD 4 trillion dollars reduction was required

It was claimed by treasury officials that S&P had erroneously inflated the US deficits by over $2 trillion and the agency rectified the error after being alerted.
Raising concerns over the creditworthiness of the world’s largest economy, Standard and Poor’s has downgraded sovereign rating of the US from the top-most ‘AAA’ level for the first time in history — a move that could make the debt-ridden nation’s borrowings costlier.

Announcing the unprecedented move of downgrading the long-term sovereign credit rating of the US a notch lower from ‘AAA’ to ‘AA+’, the rating agency major said it considers the efforts being made by the administration to tackle soaring debt levels as inadequate.
S&P warned of even further downgrading it to ‘AA’ level, while assigning a negative outlook on the current rating.
“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned…,” the agency said.

Taken aback by the downgrade, the US administration appeared to be questioning the analysis of the rating agency saying it was way off the mark.
The government is also said to have fought the downgrade with the treasury officials terming the S&P analysis as fundamentally flawed. At the same time, the US economic policymakers also reassured the investors about the country’s commitment to the government issues or guaranteed securities.

News Source :http://www.indianexpress.com

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