Standard and Poor’s, one of the most important rating agency worldwide, announced yesterday it downgraded the US credit rating from AAA to +AA; This is a one level drop. It’s also the first time in US history that the United States lost its tripe A rating.
S&P also kept a “negative” outlook on US credit rating, and also stated that it may further downgrade the US credit rating again within the next couple of years from +AA to AA if the US government won’t raise taxes (i.e. end the Bush tax cuts), or if it won’t implement the agreed upon spending reductions, or if interest rates will rise.
“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P gave this statement yesterday after markets closed.
The US House of Representatives passed the law on August 2nd to raise the US debt ceiling from $14.3 trillion to $16.4 trillion, i.e. an increase of $2.1 trillion.
This increase should suffice the US economy for the next couple of years up to 2013. The deal between Democrats and Republicans also includes cutting the federal budget deficit by $2.5 trillion over the next decade, but without raising taxes.
The financial markets reacted during the last couple of days to the concerns over US economy double dipping into another rescission, as the S&P500 along with other major stock indexes fell very sharply along with crude oil prices and US dollar.
China, the world largest creditor of US debt already voiced its concerns and stated that US should address its structural debt problems in order to ensure China’s dollar assets.
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