Washington: For the first time in history, credit
rating agency Standard & Poor's has downgraded America's top notch
credit rating, stripping the world's largest economy of its prized AAA status.
"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.
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.
Earlier this week, Congress instead passed a plan to reduce the
debt by at least $2.1 trillion.
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
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
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 email@example.com)