White House Fighting S&P Downgrade: Report

Friday, 05 Aug 2011 08:11 PM

 

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WASHINGTON — Standard & Poor's has informed the US government it plans to issue an unprecedented downgrade of the US credit rating from its AAA value, but the White House was pushing back against "serious" errors in its analysis, US media reported Friday.

CNN said it had been told by a senior administration official that the ratings agency was planning a downgrade after analyzing the deal to raise the nation's debt ceiling struck earlier this week.

But the White House had found "serious and amateur errors of the S&P analysis," CNN said, citing the official, who added that the agency's figures were off "by trillions of dollars."

"Now the officials say S&P acknowledged some errors and agree to rethink the analysis," CNN added.

ABC television, also quoting an unnamed government official, said the agency was planning a downgrade following the political tumult which surrounded the debt ceiling row resolved at the last minute this week.

It would also point to a Republican refusal to raise taxes to help tackle the huge US budget deficit, the report said.

But ABC also reported that the Obama administration was pushing back against Standard and Poor's. Even though "S&P has acknowledged its numbers are wrong, it's unclear what they're going to do," ABC said on its website.

There was no immediate comment from the White House or the Treasury on the reports, and no indication on when any S&P downgrade would take place. It was also unclear whether a new rating would be graded at AA+ or AA.

A debt downgrade would certainly be a symbolic embarrassment for President Barack Obama, the administration and the United States, and could raise the cost of US government borrowing.

But some analysts have questioned whether a ratings cut would impact demand for US debt, have dismissed the raters as having low credibility, and questioned whether the markets would take much notice.

Ratings agencies Moody's and Fitch both reaffirmed their AAA rating of US debt shortly after Obama signed a bill raising the debt ceiling on Tuesday.

But they warned they were still studying the legislation's deficit-cutting measures to see if they were adequate.

S&P is considered the most influential of the three major rating agencies which also include Moody's and Fitch.

It has been the most aggressive in moving towards a US downgrade. On April 18, S&P lowered its outlook attached to the AAA rating from "stable" to "negative," citing the absence of a credible plan for reducing Washington's huge fiscal deficits.

In July, during the protracted standoff over raising the government's debt ceiling between Obama and Republicans, S&P placed the United States on credit watch and warned there was "at least" a one-in-two chance that it would cut the rating within 90 days.

S&P also suggested any deficit plan needed to trim some $4 trillion over 10 years; the plan that has passed only envisages cuts of up to $2.4 trillion.

There are currently 17 nations boasting an AAA debt rating from S&P along with three other territories -- Hong Kong, Guernsey and the Isle of Man.

Moody's, the oldest credit agency, placed the US on a downgrade watch on July 13 and upheld its rating Tuesday after Congress passed the last-minute deal which avoided a debt default.

But Moody's also added a "negative" outlook to its rating, warning it could still downgrade the United States if the deficit-slashing plan goes astray, if fiscal discipline weakens, or if growth deteriorates significantly.

Fitch opened a review of the US rating on June 8 and said it would be completed by the end of August.

After the debt deal was clinched, Fitch said the United States would keep its AAA rating but warned it was under review.

© AFP 2014

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