US loses AAA credit rating, terms it ‘a facts-be-damned decision’ (Lead)

August 6th, 2011 - 8:46 pm ICT by IANS  

Washington, Aug 6 (IANS) Sending shock waves through America, credit rating agency Standard & Poor’s has downgraded its top notch credit rating, stripping the world’s largest economy of its prized AAA status. Obama administration officials called it “a facts-be-damned decision,” saying S&P; admitted to an error that inflated US deficits by $2 trillion.

“We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’,” S&P; said Friday in a stunning blow to the country, that has enjoyed the top rating for 70 years, and its political leadership.

US Treasury officials received S&P;’s analysis Friday afternoon and alerted the agency to the error, CNN cited an unnamed senior administration official as saying.

The agency acknowledged the mistake, but said it was sticking with its decision to lower the US rating from a top score of AAA to AA+.

“This is a facts-be-damned decision,” the official was quoted as saying. “Their analysis was way off, but they wouldn’t budge.”

The White House is now in wait-and-see mode — hoping the decision and the S&P; analysis face outside scrutiny, he added.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury Department spokesperson said.

John Chambers, head of sovereign ratings for S&P;, admitted there was an error in a CNN interview Friday night, saying “we agree with the Treasury’s position on this and our figures reflect that”.

But he also said the error “doesn’t make a material difference — it doesn’t change the fact that your debt-to-GDP ratio … will continue to rise over the next decade.”

S&P; has not spelled out what the US has to do to regain its AAA rating. However, Chambers said “it’s going to take a while to get back to AAA”.

Meanwhile, in the midst of the blame game, analysts said the downgrade of the US AAA credit rating will apply even greater pressure on Congress to follow through on plans to tame the nation’s debt.

In its downgrade announcement Friday, S&P; said it could “stabilise” the US rating if the work of a proposed new bipartisan 12-member “super committee” helps lead to debt-reduction measures “beyond the minimum mandated.”

Earlier this week, Congress instead passed a plan to reduce the debt by at least $2.1 trillion.

In July, S&P;, one of the three major agencies that assign grades the credit of companies and governments, placed the US rating on “CreditWatch with negative implications” as the debt ceiling debate devolved into partisan bickering.

To avoid a downgrade, S&P; said the US needed to not only raise the debt ceiling, but also develop a “credible” plan to reduce the federal debt by at least $4 trillion over the next decade.

In its report Friday, S&P; ruled that the US fell short: “The downgrade reflects our opinion that the … plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilise the government’s medium-term debt dynamics.”

S&P; also cited dysfunctional policymaking in Washington as a factor in the downgrade. “The effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.”

The other rating agencies, Moody’s and Fitch, have said they have no immediate plan to downgrade the US credit rating, giving the government more time to make progress on debt reduction.

The split verdict limits the impact of the S&P; downgrade as many consequences would be set off only by a reduction by two agencies, the New York Times said.

But the lowering of the country’s rating could rattle confidence and raise borrowing costs for the government and consumers, impeding the already fragile recovery, it said.

The announcement by S& P came after a week of turmoil on Wall Street not seen since the days of the financial crisis. After plunging around 5 percent Thursday, stocks bounced up and down Friday and closed relatively flat.

(Arun Kumar can be contacted at

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