http://www.thetimes.co.uk/tto/busine...cle3118516.ece
Standard & Poor’s today warned that there was a one in three chance that the United States could suffer a further downgrade to its credit rating if it failed to solve its debt problem within two years.
The credit rating agency downgraded US government-backed mortgage giants Fannie Mae and Freddie Mac to AA+ from AAA after Friday’s downgrade of US debt.
S&P has also lowered from AAA to AA+ the ratings for farm lenders; long-term US government-backed debt issued by 32 banks and credit unions, as well as three major clearing houses that are used to execute trades of shares, bonds and options.
The agency said that the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term US debt.
S&P officials will also say how local and state governments will be affected by the decision on Friday to lower the long-term US debt from AAA to AA+.
David Beers, of S&P, said that the US outlook could be raised to stable if a deficit-cutting deal agreed by Congress last week is fully implemented and the Obama Administration ends the Bush-era tax cuts.
Mr Beers told ABC Television today that the agency had no regrets about its decision to cut the US rating. But he also said that there was a one in three chance that it could go lower again within the next six months to two years.
His comments about the potential for a further downgrade echo those of John Chambers, S&P’s managing director, who told ABC’s This Week with Christiane Amanpour that there was “at least a one in three chance of a downgrade” over the next two years.
It its statement on Friday evening, S&P warned of a possible further downgrade: “We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”
Warren Buffett, the legendary investor known as the “Sage of Omaha”, told CNBC today that Berkshire Hathaway, his company, was still buying US Treasuries. “US debt is still AAA,” he said.
The full political cost of such a highly symbolic loss of faith in the US economy will become clear only during the next 15 months of campaigning.
Officials expected Friday’s downgrade after a frantic, failed effort to dissuade Standard & Poor’s. They hit back with a detailed attack on the agency’s arithmetic, but its judgment on the scale of America’s debt crisis and Washington’s inability to resolve it is still damning.
As markets dived on rumours of the downgrade, furious White House staff blamed the “amateur arsonists” of the new intake of Republican House members who proved willing to risk the world’s largest economy for the principle of linking more borrowing to spending cuts without tax increases.
Top Democrats rounded on the “Tea Party downgrade”, but Standard & Poor’s insisted that its verdict on last week’s debt deal was not partisan. The deal provides for $2.5 trillion of cuts over ten years; the agency said that at least a $4 trillion cut was needed to start paying down the $14.3 trillion national debt.
China’s Xinhua news agency, on behalf of a Government that holds more than $1 trillion in US debt, published a scathing editorial, calling the downgrade “overdue”.
The higher borrowing costs that the Treasury was now likely to face were a “bill that America has to pay for its own debt addiction and the short-sighted political wrangling in Washington”. The editorial echoed Russian calls for progress towards an alternative to the dollar as a reserve currency.
The credit rating agency downgraded US government-backed mortgage giants Fannie Mae and Freddie Mac to AA+ from AAA after Friday’s downgrade of US debt.
S&P has also lowered from AAA to AA+ the ratings for farm lenders; long-term US government-backed debt issued by 32 banks and credit unions, as well as three major clearing houses that are used to execute trades of shares, bonds and options.
The agency said that the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term US debt.
S&P officials will also say how local and state governments will be affected by the decision on Friday to lower the long-term US debt from AAA to AA+.
David Beers, of S&P, said that the US outlook could be raised to stable if a deficit-cutting deal agreed by Congress last week is fully implemented and the Obama Administration ends the Bush-era tax cuts.
Mr Beers told ABC Television today that the agency had no regrets about its decision to cut the US rating. But he also said that there was a one in three chance that it could go lower again within the next six months to two years.
His comments about the potential for a further downgrade echo those of John Chambers, S&P’s managing director, who told ABC’s This Week with Christiane Amanpour that there was “at least a one in three chance of a downgrade” over the next two years.
It its statement on Friday evening, S&P warned of a possible further downgrade: “We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”
Warren Buffett, the legendary investor known as the “Sage of Omaha”, told CNBC today that Berkshire Hathaway, his company, was still buying US Treasuries. “US debt is still AAA,” he said.
The full political cost of such a highly symbolic loss of faith in the US economy will become clear only during the next 15 months of campaigning.
Officials expected Friday’s downgrade after a frantic, failed effort to dissuade Standard & Poor’s. They hit back with a detailed attack on the agency’s arithmetic, but its judgment on the scale of America’s debt crisis and Washington’s inability to resolve it is still damning.
As markets dived on rumours of the downgrade, furious White House staff blamed the “amateur arsonists” of the new intake of Republican House members who proved willing to risk the world’s largest economy for the principle of linking more borrowing to spending cuts without tax increases.
Top Democrats rounded on the “Tea Party downgrade”, but Standard & Poor’s insisted that its verdict on last week’s debt deal was not partisan. The deal provides for $2.5 trillion of cuts over ten years; the agency said that at least a $4 trillion cut was needed to start paying down the $14.3 trillion national debt.
China’s Xinhua news agency, on behalf of a Government that holds more than $1 trillion in US debt, published a scathing editorial, calling the downgrade “overdue”.
The higher borrowing costs that the Treasury was now likely to face were a “bill that America has to pay for its own debt addiction and the short-sighted political wrangling in Washington”. The editorial echoed Russian calls for progress towards an alternative to the dollar as a reserve currency.
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