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Black Friday for US. Credit Rating downgraded to AA+
The country that has maintained its 'AAA' credit rating since 1941, finally loses its sovereign label of 'the best quality borrower' and 'the country with stable and reliable economy'. Last month, S&P downgraded the outlook on U.S. Treasuries from "stable" to "negative."
A lower credit rating for the U.S. would result in increased borrowing costs for the government.
In an explanation of the decision, S&P said the main reason for the downgrade in the outlook was because of political impasse over the plan on how to get the deficit under control. It also stated that their confidence have been reduced about the government's ability to manage its finances.
Despite of the last week's agreement, which raised the $14.3 trillion debt ceiling and promised cuts of $2.5 trillion to the deficit over the next decade, it falls short of what S&P expected.
"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed falls short of what, in our view, would be necessary to stabilise the government's medium-term debt dynamics," S&P said.
It also added, credit rating could be further downgraded in two years if progress is not made in cutting the huge government budget gap.
Credit rating agency Moody's still has maintained AAA credit rating for U.S. for the time being but lowered its outlook on U.S. debt to "negative."
A "negative outlook" indicates the possibility that Moody's would downgrade the country's sovereign credit rating within a year or two.
This step by S&P has sent shock waves across the world, with many concerning that it could tremble the financial system worldwide. Global investors are anxious about the Monday morning bells over the stock market street.
(Also read: Understanding the global stock market crash: Aug 2011)
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