S&P; warns US of further downgrade

August 8th, 2011 - 9:51 am ICT by IANS  

Washington, Aug 8 (IANS) Two days after its historic downgrade of America’s top notch AAA credit rating, a top executive of Standard & Poor’s warned that continued political gridlock in Washington could contribute to another reduction.

“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,” S&P; managing director John Chambers said on ABC Sunday.

Chambers gave the prospect a one-in-three chance. He also pushed back on claims by the White House that the first-ever credit downgrade was the result of faulty analysis by the ratings agency.

“We have been saying for some time that the fiscal trajectory of the United States was on a bad path and that the political gridlock in Washington leads us to conclude that policymakers don’t have the ability to proactively put the public finances of the United States on a sustainable footing,” Chambers said.

The S&P; head of sovereign ratings also said that it could take years for the US to return from downgraded AA+ to the top rank AAA status.

“Well, if history is a guide, it could take a while,” Chambers said. “We’ve had five governments that lost their AAA that got it back. The amount of time that it took for those five range from nine years to 18 years, so it takes a while.”

The agency’s concerns “are centred on the political side and on the fiscal side,” he said.

“So it would take a stabilisation of the debt as a share of the economy and eventual decline,” Chambers said. “And it would take, I think, more ability to reach consensus in Washington than what we’re observing now.”

(Arun Kumar can be contacted at arun.kumar@ians.in)

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