Standand & Poor’s warns US on downgrade of AAA status

Ratings agency Standard & Poor's yesterday warned that the US could lose its coveted status as the world's most secure economy if lawmakers failed to rein in the nearly $14.3-trillion debt.

The agency changed its outlook on the US from ''stable'' to ''negative'' adding that federal government could lose its AAA rating if officials failed to bring spending in line with revenue.

With the AAA rating the US has been one of the safest investment destinations, which has helped the country borrow at extraordinarily cheap rates to finance its government operations. This includes two wars as also an expensive social safety net for retirees.

A downgrade would push up the borrowing costs and raise some questions about the role of the Treasury bond. The Treasury constitutes a crucial risk-free place to invest money and has remained rock stable amid the economic upheaval of the past few years.

Stock prices were down around 2 per cent in the hours following the report's release before finally closing 1 per cent down by the end of the day. The dollar and Treasury bonds also retreated following the announcement of the report, but recovered by the end of the day.

Lawmakers on both sides of the deficit debate tried to take advantage of The Wall Street warning, but that only served to  highlight the polarisation in Washington was the crux of the problem.