The United States is reeling after Standard & Poor's announces it will be giving the country its first credit rating downgrade in modern history. Here's why and what that means.
Image: Jonathan Ernst - Reuters
Credit ratings agency Standard and Poor's last night announced that it would be lowering the nation's vaunted AAA credit rating for the first time since it was first granted in 1917.
The news sent shockwaves around the world, coming shortly after a week of huge losses on global stock markets and just days after gridlocked Congress finally agreed to spending cuts that would reduce the US debt by $2 trillion (£1.2 trillion).
The news sent shockwaves around the world, coming shortly after a week of huge losses on global stock markets and just days after gridlocked Congress finally agreed to spending cuts that would reduce the US debt by $2 trillion (£1.2 trillion).
Credit ratings agencies explained
Debt deal not enough to ease fears
In a statement, S&P said that the downgrade reflected the view that the debt deal signed on Tuesday fell short of what was required to deal sufficiently with the nation's medium-term debt levels, even warning that it could be due another downgrade in the next few years.
The firm added that the "effectiveness, stability, and predictability" of US policymaking had weakened: a reflection on the uncertainty caused by those last minute negotiations earlier in the week.
The drop in the rating by one notch to AA-plus means that America's national debt is now rated as higher risk than that in the UK, France and Germany, and has been a known possibility from as early as April The three main credit agencies - which also include Mood's Investor Services and Fitch - have been warning for some time that downgrades were likely if the government did not plan to cut spending by enough.
Moody's, however, has since said it would maintain the AAA rating on the nation's debt, but hasn't ruled out lowering it in future. Equally Fitch announced that the debt ceiling deal had been "commensurate with [the US'] 'AAA' rating" with the risk of sovereign default remaining extremely
Debt deal not enough to ease fears
In a statement, S&P said that the downgrade reflected the view that the debt deal signed on Tuesday fell short of what was required to deal sufficiently with the nation's medium-term debt levels, even warning that it could be due another downgrade in the next few years.
The firm added that the "effectiveness, stability, and predictability" of US policymaking had weakened: a reflection on the uncertainty caused by those last minute negotiations earlier in the week.
The drop in the rating by one notch to AA-plus means that America's national debt is now rated as higher risk than that in the UK, France and Germany, and has been a known possibility from as early as April The three main credit agencies - which also include Mood's Investor Services and Fitch - have been warning for some time that downgrades were likely if the government did not plan to cut spending by enough.
Moody's, however, has since said it would maintain the AAA rating on the nation's debt, but hasn't ruled out lowering it in future. Equally Fitch announced that the debt ceiling deal had been "commensurate with [the US'] 'AAA' rating" with the risk of sovereign default remaining extremely
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