S & P puts future U.S. credit rating in doubt over spending budget

Doubt about the ability of politicians to agree on deficit reduction has resulted in a downgrade of the U.S. credit rating outlook by Standard & Poor’s. Partisan quarreling over the budget has impacted the long view. However, the existing top tier U.S. credit rating granted by S & P remains intact. Stocks across the markets fell on the news. Source for this article – S & P enters budget debate by lowering U.S. credit rating outlook by MoneyBlogNewz.

Issues deciding on budget hurt United States credit

Fighting over the budget has brought on several to look poorly on the United States credit rating. This has concerned Washington. Monday Standard & Poor’s lowered the U.S. credit outlook based on the risk that politicians could fail to agree on a plan to lower the federal spending budget deficit to sustainable amounts. Standard & Poor’s is one of three major agencies investors rely on to evaluate public and private debt scenarios. The risk an investor has when purchasing debt, which makes a difference in rates of interest, is determined based on the S & P. The United States long-term credit rating outlook dropped on S & P. That means “negative” rather than “stable” is now the status. The country’s AAA rating hasn’t been changed on S & P. The drop really just means that, without change, the country can have a downgrade in the next couple of years.

S & P move highlights risks of U.S. debt

The federal spending budget deficit has gotten to about 10 percent of United States GDP at $1.5 trillion which is something the Obama administration and Congress has been pressured to agree upon now that the long-term U.S. credit rating outlook from S & P was dropped. If allowed to continue growing at the present rate, the federal budget deficit could raise the cost of borrowing and further devalue the dollar, which would exacerbate the issue by degrading the government’s ability to finance the deficit. A long-term deficit reduction plan is not likely to be announced anytime soon. Most expect it will not come until the end of 2012 elections. S & P might lower the AAA credit rating for the U.S. if there isn’t a decision made by then. Such a move would send rates on mortgages soaring and trigger a relapse of the credit crunch, which would send U.S. economic recovery off the rails.

Treasury tries to deflect effect of S & P announcement

The Treasury Department said S & P’s decision to lower the long-term United States credit rating outlook to negative “underestimates” United States leadership. At a press conference in Washington, a Treasury official said the cost of borrowing is not expected to rise on news of the S & P downgrade and reiterated the soundness and liquidity of United States debt. The official said also that the S & P needs to let politics work on its own without making decisions depending on it. Before this comment, there was a drop in stock on Monday. In early trading, over 1 percent was lost. Blue chip stocks shed more than 200 points as investors worried that the S & P downgrade could increase the cost of financing growth worldwide.

Citations

CNNMoney.com

money.cnn.com/2011/04/18/news/economy/us_credit_rating_outlook_lowered/?section=money_latest

Reuters

finance.yahoo.com/news/SP-cuts-US-outlook-to-rb-384336593.html?x=0&sec=topStories&pos=main&asset=&ccode=

Bloomberg

bloomberg.com/news/2011-04-18/treasury-s-miller-says-s-p-outlook-underestimates-u-s-1-.html

Fox Business

foxbusiness.com/markets/2011/04/18/futures-extend-foreign-losses/