U.S. Debt Downgraded

Econintersect:  For the first time in history U.S. government debt does not have the top level credit rating.  S&P (Standard and Poor’s) downgraded Treasury debt from AAA to AA+ Friday (August 5).  The announcement came after stock and bond markets closed, so the impact on securities trading could not be immediately observed.  The credit rating agency said that two factors were foremost in their decision:  (1) The debt ceiling plan passed this week “falls short” of what is needed to stabilize the country’s long-term finances; and (2) The partisan brinksmanship of political action does not bode well for future responsible action.From the Los Angeles Times:

“The political brinkmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective and less predictable than what we previously believed,” said S&P, one of three leading credit rating agencies.

“The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”

The outlook on the long-term rating is negative and S&P could go to a lower rating within the next two years, according to CBS News.

CBS also reported that the U.S. treasury has issued a statement that there is an error of $2 trillion in the S&P calculations.  From CBS:

A Treasury Department spokesperson said in reaction to the news of the downgrade: “A judgment flawed by a $2 trillion error speaks for itself.”

CBS said that S&P has not responded to the Treasury allegation.

As reported by GEI News, the other two major credit rating agencies (Moody’s and Fitch) had reaffirmed the AAA rating on Thursday (Aug. 4).  No reaction to the S&P action from either Moody’s or Fitch has been reported yet.

Sources:  Los Angeles Times, CBS News and GEI News