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Does the United States Still Deserve its "AAA" Credit Rating?

By , Associate Editor, Money Morning •

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?

[Editor's Note: Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "Question of the Week suggestion" in the subject line.

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.]

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