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S& P Downgrades US Credit Rating to AA-Plus

Published: Friday, 5 Aug 2011 | 10:02 PM ET

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By: CNBC with wires

The United States lost its top-notch triple-A credit rating from Standard & Poor's Friday, in a dramatic reversal of fortune for the world's largest economy.

Michele Constantini | PhotoAlto | Getty Images

S& P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

" 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 said in a statement.

" More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011," the statement said.

The outlook on the new U.S. credit rating is negative, the S& P said in its statement, a sign that another downgrade is possible in the next 12 to 18 months.

On Aug. 2, President Barack Obama signed legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years. But that was well short of the $4 trillion in savings S& P had called for as a good " down payment" on fixing America's finances.

The political gridlock in Washington and the failure to seriously address U.S. long-term fiscal problems came against the backdrop of slowing U.S. economic growth and led to the worst week in the U.S. stock market in two years.

" I did not expect this to happen this soon. This is something they gave the criteria on and I guess they stuck to it," said George Goncalves, chief Treasury strategist for Nomura Americas. " I really thought they'd take the two-stage approach and see how further cuts would come along."

This came after a confusing day of reports: Standard & Poor's told the U.S. government early Friday afternoon that it was preparing to downgrade the U.S.'s triple-A credit rating but U.S. officials notified S& P that it had made a $2 trillion mathematical error.

The error was in the calculation of the U.S. debt-to-GDP ratio over time and was based on a misreading of what the correct congressional baseline was, government sources indicated. They said that once informed of the error S& P revised its rate-cut rationale to emphasize the political aspects of the country's debt situation.

" A judgment flawed by a $2 trillion error speaks for itself," a Treasury spokesperson said.

Throughout Friday, markets were rife with speculation that S& P, which has had a negative outlook on the U.S. since April 18, would downgrade the country’s credit from its current triple-A level and that it could come as early as Friday night.

Goncalves said the downgrade could hit market confidence.

U.S. Treasurys, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.

On July 14, S& P put the government on a credit watch with negative implications, meaning there was at least a one in two chance the U.S.’s long-term debt would be downgraded within 90 days.

Earlier Friday an S& P spokesman declined to comment on any possible plans for a downgrade or statement.

On Tuesday, both Fitch and Moody's backed their triple-A rating on the U.S.—but with caveats.

Fitch warned that the U.S. rating " will remain under pressure for some time," while Moody's [MCO 32.88 -0.68 (-2.03%) ] went so far as to slap the U.S. with a negative outlook.

— John Harwood, Patti Domm, Allen Wastler and Kate Kelly contributed to this report.

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05-Aug-2011 16:50

Others / STI to cross 3383 by 2011 Nov

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http://weibo.com/1905661897 its good if u can understand what this guys post on his blog.

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04-Aug-2011 10:58

Others / STI to cross 3383 by 2011 Nov

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lol we.keep buying.some burger.keep selling. we stop our buy for today.

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04-Aug-2011 10:20

Others / STI to cross 3383 by 2011 Nov

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x 0

Afternoon funds might buy up asia market. good luck. Happy birthday Singapore

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04-Aug-2011 10:17

Others / STI to cross 3383 by 2011 Nov

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We are singapore, we are singapore, weare singapore we will stand together hear market roar. we strongly recommend Buy . . . :) SINAGPORE HUAT AH.

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04-Aug-2011 08:44

Others / STI to cross 3383 by 2011 Nov

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After 8 days of selling wall street has lost almost 10% from a high 12800 to 11600. With our data on hands we view this selling overly done. Our team now favour US market. We still believes global recoverly is.intact. US will and right now has the power to do more to stimulate its economy since the debt ceiling has been raise. We will hear from them pretty soon. We believed a strong 2nd half has already kick in as we.move closer to feastive seasons. Good Luck. Trade with care.

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03-Aug-2011 13:36

Others / STI to cross 3383 by 2011 Nov

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our team believed there will be a rebound coming. Today is a buy.

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03-Aug-2011 08:49

SGX / SGX

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our team favour sgx. we recommend buy on dip for this baby. recent initiative have improved sgx revenue and we believed the trend will be intact. we have raise.our tp to 8.15 from 7.40

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02-Aug-2011 19:30

Genting Sing / Traders Lounge - Daily opportunities for everyone

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dont worry there are millions of scripts out there that want to sell to u :) Dont even borrow just let it buy in after 2 days. U will make profit

muifan ( Date: 02-Aug-2011 18:58) Posted:

All sifu can help me ans one query?

Anyone use cash account to short but never cover back at the end of the day?

do not underestimate the CHINESE GHOST MTH..this afternoon i key in to Q for LONG

for COSCO at 1.515..then dunno " WHAT" covered my eye i accidentally click SELL..

now i got short position at 1.515 for COSCO never cover back at the end..

my agent called me after 5pm...he say tmr monrning must see if house got any on hand to LEND ME..

if not he will tell me the consequences...issit tio FINE? HOw many thousand? :(

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02-Aug-2011 19:27

COSCO SHP SG / CoscoCorp

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Most likely be trading with 1.2x-1.3x range. Unless there is really something bad happening to the global economy you will then see it below $1.00 and it will happen to many stocks not just cosco.... if you see it one day. STI might be 2800 or below.

Bintang ( Date: 02-Aug-2011 18:42) Posted:

If measure from the gapping down price at $1.595 , Cosco could go down to 95 cents technically , because its width of the downtrend channel is 65 cents .

Bintang ( Date: 02-Aug-2011 18:33) Posted:

RSI is at all time low since last crisis , the trend is very weak now

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01-Aug-2011 11:13

Others / STI to cross 3383 by 2011 Nov

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Huat ah

risktaker ( Date: 19-Jul-2011 12:44) Posted:

just read a special report saying shortage of clean water supply in china was worsen. We might buy water.stocks in near term. utdenvirontech is our pick. we favour water sector

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01-Aug-2011 10:37

COSCO SHP SG / CoscoCorp

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becareful. though.fundementals hasnt change but cosco is in downtrend mode. we might see 1.60x soon

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01-Aug-2011 10:10

Others / STI to cross 3383 by 2011 Nov

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Huat ah

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31-Jul-2011 16:37

Others / STI to cross 3383 by 2011 Nov

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Signs of Progress in Debt Talks Vote Scheduled Sunday

Published: Sunday, 31 Jul 2011 | 2:23 AM ET

By: Reuters

The U.S. Senate delayed until later on Sunday a key test vote on a Democratic plan to raise the country's debt limit as signs of progress emerged in negotiations to strike a deal to avert a damaging default.

John Boehner
Getty Images
John Boehner (R)

With a Tuesday deadline looming to raise the government's $14.3 trillion borrowing limit , lawmakers are fighting against the clock to forge a bipartisan compromise agreement that can pass both the Democratic-controlled Senate and the House of Representatives, which Republicans lead.

The Senate had scheduled a 1 a.m. EDT test vote on Sunday on a debt limit and deficit reduction plan presented by Senate Majority Leader Harry Reid that Republicans said they opposed and could have blocked.

But Reid told the Senate late on Saturday night that the vote would now be held at 1 p.m. EDT on Sunday to give negotiators " as much time as possible" .

" There are negotiations going on at the White House now on a solution that will avert a catastrophic default on the nation's debt," Reid said.

" There is still a distance to go," he said.

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