US faces credit downgrade if debt not cut

The United States has been put on notice that it faces losing its AAA credit rating unless it gets on top of its yawning debt and deficit.

For the first time in history, the credit agency Standard and Poor's has downgraded America's credit outlook from stable to negative, cranking up pressure on a Congress already embroiled in a heated argument over how to rein in spending.

Stocks plunged sharply on Wall Street in the wake of the announcement from Standard and Poor's.

"We've said today that the risk is that the rating would fall exactly one step to AA+," said David Beers, the global head of Sovereign Relations at the ratings agency.

"So this is from our perspective a, saying that there is a risk of a mild deterioration in the US's credit standing."

Douglas Holz Eakin, a former official at the US congressional budget office, says this is more than just a shot over the bows from S and P.

"It's not really surprising that at some point this was going to happen. Analysts and financial market participants have been looking at the federal budget for years, it's a picture that hasn't changed much over time and implicitly, you have to assume that market participants and analysts were assuming some sort of budgetary fix in the future," he said.

"What Standard and Poor's said today is, you know, it might not happen and certainly if it doesn't happen we have a financial disaster for the Government and an economic disaster for the US."

S and P says it has little confidence that Congress can manage to come up with a plan to reduce the deficit before next year's elections.

"Right now it's the gulf between the parties that we think is going to be very difficult to bridge, not only in the next couple of months, but possibly in the next few years," Mr Beers added.

Coming amid multiple battles on Capitol Hill over how to deal with a swelling $14 trillion debt that both sides of politics agree is unsustainable, the credit warning plays into an increasing fixation with cutting spending.

However, the top White House economist Austan Goolsbee said S and P had made a "political judgement" that should not be taken too seriously.

Nevertheless, the credit warning dominated a White House press briefing held by spokesman Jay Carney.

"We believe the process will outperform S and P's expectations on the political side of this, which, you know, we obviously have a certain amount of experience here, just in these last two plus years and dealing with Congress and in the last several months in dealing with a divided Congress and still getting things done," Mr Carney argued.

"There is a way because the American people demand it."

Just last week a congressional report blamed ratings agencies for triggering the financial crisis by cutting the inflated ratings they had applied to complex mortgage-backed securities.

A rival ratings agency, Moody's, has said it views the direction of US fiscal policy as "credit positive".
ABC

hostgator coupon 2011