Obama blames credit rating drop on political gridlock

US president says "we've always been, always will be a triple-A country" in response to debt downgrade; S&P reiterates Israel's A bond rating.

August 8, 2011 21:40
2 minute read.
Obama speaks in a prime-time address

Obama White House speech 311. (photo credit: REUTERS/Jim Watson/Pool)


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US President Barack Obama on Monday blamed a downgrade in the United States' credit rating on political gridlock in Washington and said he would offer some recommendations on how to reduce federal deficits.

Obama stopped short of sharp criticism of Standard & Poor's for its downgrade of US debt to AA+ from AAA on Friday. Senior administration officials have accused S&P of going ahead with the downgrade despite a $2 trillion mathematical error.

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"Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a triple-A country," Obama said.

As Obama spoke, stock markets were registering another steep decline, dropping more than 450 points in afternoon trading.

Obama said in a White House appearance that he hopes the Standard and Poor's downgrade of US debt to AA+ from AAA will give lawmakers a new sense of urgency to tackle deficit spending and said he did not believe the reductions could be carried out with spending cuts alone.

A congressional committee, to be formed under the legislation passed last week that averted a government default, is to report its recommendations in late November on how to cut $1.5 trillion in spending over a decade.

Obama said he would offer his own recommendations for fixing the problem and cited again the need to raise taxes on wealthier Americans and make modest adjustments to popular but expensive entitlement programs.

Meanwhile, Standard & Poor's on Monday reiterated its A/A-1 sovereign credit rating for Israel with a "Stable" outlook. However, in line with Friday's downgrade of the US credit rating from AAA to AA+, S&P downgraded US guaranteed Israeli government bonds to AA+.

The downgrade affects six bond series totaling $5.94 billion.

S&P economists began their annual review of Israel a few days ago. Top sources in Jerusalem said that S&P's main concern was about housing prices. "They are worried about how we intend to deal with a real estate bubble, if one has already developed," said a source.

S&P is also concerned about repercussions from the upheavals in Arab countries on Israel and its security. Potentially future hostile regimes are liable to undermine Israel's stability, affect Israel's economic activity and growth, and, most of all, cause a sharp increase in defense spending thereby increasing the deficit and debt. Israel is also affected by the weakness in the US and European economies, which account for half of Israel's exports.

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