United States loses AAA credit rating from S&P

The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

August 6, 2011 04:52
1 minute read.
Stock trader monitors market movement

Stock trader monitors market movement 311 (R). (photo credit: REUTERS/Cheryl Ravelo)

NEW YORK - The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday in an unprecedented reversal of fortune for the world's largest economy.

S&P cut the long-term US credit rating by one notch to AA-plus on concerns about the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

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"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

The decision follows a bitter political battle in Congress over cutting spending and raising taxes to reduce the government's debt burden and allow its statutory borrowing limit to be raised.

On Aug. 2 President Barack Obama signed legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years. But that was well short of the $4 trillion in savings S&P had called for as a good "down payment" on fixing America's finances.

The political gridlock in Washington and the failure to seriously address US long-term fiscal problems came against the backdrop of slowing US economic growth and led to the worst week in the US stock market in two years this week.

The S&P 500 stock index fell 10.8 percent in the past 10 trading days on concerns that the US economy may head into another recession and because the European debt crisis has been growing worse as it spreads to Italy.

A Federal Reserve spokesperson said on Friday that Standard & Poor's ratings downgrade of US debt does not affect the operation of the Fed's emergency lending window or its buying and selling of Treasury securities to conduct monetary policy.

"The decision by Standard and Poor's has no implications for the operation of the Federal Reserve's discount window or the conduct of open market operations," a Fed spokesperson said.

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