Further US Credit Downgrade Possible

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　　Standard and Poor’s judgement

　　Days after Standard and Poor’s made headlines across the globe by saying the United States no longer merits its highest AAA credit rating, the firm’s managing director, John Chambers¹, says another downgrade cannot be ruled out if America’s worsening fiscal² imbalances do not improve.

　　“If the fiscal position of the United States deteriorates³ further, or if the political gridlock becomes more entrenched⁴, then that could lead to [another] downgrade.

　　Speaking on ABC’s This Week television program, Chambers put the chances of a further credit downgrade at one-in-three. But he also noted⁵ that it is possible for nations to regain⁶ their AAA rating if they demonstrate fiscal restraint over a period of years.

　　US & World's markets

　　The possibility of another downgrade can hardly reassure⁷ nervous stockholders. Even before Standard and Poor’s announcement late Friday, investors⁸ showed their willingness to sell off stocks. U.S. and other markets suffered some of their steepest losses of the year last week.

　　But market jitters⁹ stem from more than U.S. fiscal woes¹⁰, according to the head of Standard and Poor’s government debt rating unit, David Beers.

　　“A lot of what is worrying the markets is the unfolding story in Europe, and also a perception from a global economic perspective that the world economy may be slowing down," he said. "So I think the markets are reacting to a lot of factors, not just what S&P [Standard and Poor’s] said on Friday.”

　　US debt

　　The U.S. national debt stands at $14.3 trillion, the cumulative¹¹ total of annual federal deficits¹³. Last week, President Barack Obama signed a bill to raise the federal borrowing limit and shave more than $2 trillion from the deficit¹² over ten years. In the months leading up to the agreement, Democratic and Republican negotiators were unable to agree on a more ambitious, $4 trillion deficit-reduction goal, with Republicans adamantly¹⁴ opposed to any tax hikes and Democrats¹⁵ reluctant to force savings¹⁶ from costly¹⁷ programs that provide income and health care for retirees.

　　Partisan¹⁸ finger-pointing has been rampant¹⁹ in Washington in recent months, and continued after the S&P downgrade. Appearing on CBS’ Face the Nation program, top Obama political strategist David Axelrod placed the blame on the Tea Party faction²⁰ of the Republican Party. Axelrod noted that some Tea Party members of Congress refused to support any deal to raise the U.S. debt ceiling, even if doing so risked a U.S. default on its debt obligations.

　　“They played brinksmanship with the full faith and credit of the United States. This is essentially²² a Tea Party downgrade," said Axelrod. "The Tea Party brought us to the brink²¹ of a default.”

　　Not so, according to Congressman²³ Paul Ryan, chairman of the Budget Committee in the Republican-controlled House of Representatives. Appearing on Fox News Sunday, Ryan noted that the House passed a budget that would have slashed²⁴ the federal deficit by more than $5 trillion over 10 years, but that the bill was blocked in the Democratically-controlled Senate. He blamed out-of-control federal spending for the credit downgrade.

　　“It is because Washington has not gotten its fiscal house in order. We [Republicans] passed a budget.”

　　In downgrading U.S. creditworthiness, Standard and Poor’s listed Washington’s seeming inability to overcome partisan gridlock as sapping faith in the nation’s ability to confront its fiscal challenges.

　　The Obama administration has accused S&P of using faulty math in its assessment²⁵, saying the firm overestimated²⁶ the projected rise in the national debt by $2 trillion.

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