S&P Defends US Downgrade, Warns of Further Downgrade in 6-24 Months

By: EW News Desk Team   Date: 8 August 2011

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EW News Desk Team

Always on the look out for the latest news to monitor the state of the world economy.

EconomyWatch, News Desk Team

 

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08 August 2011

Amidst heavy criticism from US politicians over its decision to downgrade the US economy from AAA status to AA+ for the first time in history, Standard & Poor’s took another unprecedented step on Saturday when it held a conference call with reporters to vigorously defend the rationale behind its decision.

Describing the political lead up to the recently concluded debt deal as a "debacle," S&P officials warned that further downgrades could await the US economy.

Related: Doomed for Disaster – America’s Dangerous Debt Deal: Michael Mandelbaum

Related: Downgrade Doldrums: US Credit Rating May Drop Even if Debt Deal is Reached

"We have a negative outlook ... from six months to 24 months," said S&P's managing director (MD) John Chambers on ABC's "This Week."

"And if the fiscal position of the United States deteriorates further or if the political gridlock becomes more entrenched, then that could lead to a downgrade. The outlook indicates at least a one in three chance of a downgrade over that period."

According to The Financial Express, Chambers added it would take some time for the United States to recover its AAA rating.

"It would take a stabilisation of the debt as a share of the economy and eventual decline. And it would take, I think, more ability to reach consensus in Washington than what we're observing now," he said.

Senior S&P officials insisted on Saturday that the ratings agency did not overstep on its boundaries by focusing on the political paralysis in Washington as much as fiscal policy in determining the new rating.

"Fiscal policy, like other government policy, is fundamentally a political process," said David Beers, head of S&P's debt rating unit.

Addressing claims made by the US Treasury of a possible error in S&P’s calculations, Beers described the comments to be “misleading and unfair.”

Related: The Return of the Rater

"All governments, when they have their ratings lowered, aren't happy," said Beers to USA TODAY. "We haven't had a government yet that said, 'You're right, go for it.’”


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