Financial Machinery moving towards Cutting U.S. Rating

By Matt Jarzemsky
WSJ
April 18, 2011

Standard & Poor’s Ratings Services Inc. cut its outlook on the U.S. to negative, increasing the likelihood of a potential downgrade from its triple-A rating, as the path from large budget deficits and rising government debt remains unclear.

“More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” S&P credit analyst Nikola G. Swann said. He said the rating agency puts the chance of a U.S. downgrade within two years at least one-in-three.

The move comes amid continued hand-wringing over the balance sheet of the world’s largest economy and disagreement among politicians on how to address fiscal woes as economic growth remains tepid.

S&P said Monday it sees material risk that policymakers might not agree on how to address budgetary challenges by 2013, which would render the U.S. fiscal profile weaker than that of other triple-A-rated countries.

S&P said Monday the U.S.’s rating is supported by its flexible and highly diversified economy and a consistent global preference for the U.S. dollar, which gives it “unique external liquidity.”

A senior Treasury Department official said that Standard & Poor’s negative outlook underestimates the country’s ability to face fiscal challenges.

“We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” said assistant secretary Mary Miller.

Ms. Miller said that it is well within the country’s capacity to address its fiscal situation and noted that both Democrats and Republicans agree it is time to start reducing deficits as a share of gross domestic product.

S& P said that it doesn’t take any position on the outstanding proposals from the White House and Congress to cut the deficit, but views proposals from President Barack Obama and House Republicans as a starting point.

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About Luis Miranda
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