Why S&P downgraded the US
06 Aug 2011
In an unprecedented blow to the world's largest economy, Standard & Poor's has cut the United States top-tier AAA credit rating by one notch on concerns about the government's budget deficit and rising debt burden.
The AAA (triple A) rating was cut to AA+ (double AA plus) with a negative outlook, which the U.S. treasury countered by stating that the rating agency's debt calculations were wrong by some $2 trillion.
The possibility of a downgrade has loomed over Washington since Congress haggled over budget cuts and the nation's borrowing limit and follows the fierce political battle in Congress over cutting spending and raising taxes to reduce the government's debt burden and allow its statutory borrowing limit to be raised.
But lawmakers failed to cut enough government spending to satisfy S&P.
S&P's move reflects the deterioration in the global economic standing of the US, which had an AAA rating since 1941, and it could have implications for the US dollar's reserve currency status.
On 2 August President Barack Obama signed a legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years. But that was well short of the $4 trillion in savings S&P had called for as a good "down payment" on fixing America's finances.
