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Could the United States lose its status as the world's premier safe harbor for global investors?
Credit-rating heavyweight Standard & Poor's this week threatened to cut the United States' top-tier credit rating, saying the country's political infighting and burgeoning debt may warrant a downgrade.
In short: This country's days as a AAA-rated investment may be numbered.
"Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years," S&P's credit analyst Nikola G. Swann said in a statement.
S&P said that without an agreement in the next couple years on how to fix its trillion-dollar debt debacle, the United States will be weaker than other AAA-rated countries and will see a credit rating downgrade. U.S. lawmakers still haven't agreed on a way to fix finances since the U.S. budget deficit ballooned to 11% of gross domestic product (GDP) in 2009, from a range of 2% to 5% from 2003 to 2008.
Even if a deficit reduction deal is reached, S&P fears the divide between Washington's political parties is so wide that it threatens the U.S. government's ability to maintain a successful budget policy for years to come.
"We're not saying that no agreement is possible," David Beers, S&P's global head of sovereign and international public finance ratings, told Bloomberg News. "We're just unsure as to the time frame and whether it's going to be seen as credible not just by us but by the broader marketplace."
The statement was a stark warning to politicians that a lack of U.S. fiscal discipline - and lack of compromise in Congress - could strike a painful blow to the country's economic future. Some hope the S&P news is the "wake-up call" Washington has needed, and that it will make officials see how important it is for U.S. leaders to work harder at resolving budget differences.
"It's truly a shot across the bow and a message to Washington, which has been clowning around on this and playing politics when they should toss ideology aside and focus on achievement," David Ader, head of government bond strategy at CRT Capital Group LLC, told Bloomberg.
This brings us to next week's Money Morning "Question of the Week": Do you think the United States still deserves its AAA credit rating? Can U.S. lawmakers create and implement a budget that stabilizes the U.S. economic outlook and warrants a top-tier rating? Will this "negative" outlook downgrade be a kick-in-the-pants to get Washington to work harder at reducing U.S. debt?
We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate - via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Money Morning:
S&P Downgrade Shows U.S. Debt Crisis Could Have Dire Consequences - Money Morning:
S&P Debt Downgrade Ramps Up Pressure to Resolve Budget Crisis - The Wall Street Journal:
S&P Cuts U.S. Ratings Outlook to Negative - The Wall Street Journal:
Release: S&P Cuts U.S. Ratings Outlook to Negative - Bloomberg News:
Standard & Poor's Puts ‘Negative' Outlook on U.S. AAA - Money Morning News Archive:
Question of the Week Feature
America will deserve it's AAA rating if our government is willing to cut spending enough to bring our debt accumulation into line with reason. Despite what a lot of politicians are saying, we need to cut spending not only in entitlements but also in military spending. Even the top general in the US military stated he knew military spending would have to be cut in order for the country to realistically deal with hugh deficit spending. It's not just medicare/medicaid; it's every government program which needs to be cut. How we got to this point is clear but how we deal with it is especially critical at this time. Our European allies are cutting spending domestically due to tax shortfalls and we must as well. Economics is very unforgiving when it comes to failure to respond to problems. See the economic meltdown starting in 2008.
See the standard and poor's warning yesterday regarding our debt rating.
The only way to get Washington the kick in its pants is to fire almost everyone, and hire individuals who know what it is like to work for a living. Unfortunately, that will never happen as a lot of the US Population bases their vote on a person's name or how many ads they run on television.
Question: Does the United States Still Deserve its "AAA" Credit Rating?
Answer: Yes, it still does. There is no chance at this time that the U.S. Government will default on it's debt. But a few years from now that may not be the case. Standard & Poor’s revising the U.S. rating outlook to negative from stable while affirming it's AAA rating was correct.
Yes, it does deserve it's AAA rating. The American taxpayers have been supporting the world with foreign aid which goes only to the 'fat cats' who are stealing it from the poor people for whom it is intended. Cutting all foreign aid will go a long way toward balancing our budget.
We can no longer afford to support the world.
No I don't think it deserves its AAA rating. Its not just a matter of not defaulting on its debt, but has to do with how they got to this substantial amount. Any country or corporation with a percentage debt like that needs to feel the pain and start to trim some fat. The American ego and wall street has to step down when the people of a country and the world are affected with absurd decisions. The indestructible Roman empire went down and so will the US. The Bull & Bear cycle applies to everything