Now that S&P has downgraded U.S. credit rating by one notch to “AA-plus,” the blame game on Capitol Hill has begun. Let’s remember it took more than 30 years of irresponsible spending habits by the federal government to get to this point, so it is going to take several fiscally responsible actions to restore the country’s credit rating. Unfortunately if Congress and the White House do not work to get the country’s fiscal house in order over the next year, S&P could again downgrade the country’s credit rating which could have disasterous implications for domestic job growth and the global economy. Reuters does a good job of explaining the stakes for the U.S. and the world:
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about the government’s budget deficit and rising debt burden. The action is likely to eventually raise borrowing costs for the American government, companies and consumers.
The outlook on the new U.S. credit rating is “negative,” S&P said in a statement, indicating another downgrade was possible in the next 12 to 18 months.
The move reflects the deterioration in the global economic standing of the United States, which has had a AAA credit rating from S&P since 1941, and it could have implications for the U.S. dollar’s reserve currency status.
On August 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 S&P 500 stock index fell 10.8 percent in the past 10 trading days on concerns that the U.S. economy may be heading into another recession and because the European debt crisis has worsened.
Treasury bonds, once indisputably seen as the safest security in the world, are now rated lower than bonds issued by countries such as Britain, Germany, France or Canada.
Also see, Damian Paletta’s post at The Wall Street Journal – “More S&P Downgrades Expected”