Standard & Poor‘s, one of the world’s three major credit rating agencies, cited “difficulties in bridging the gulf between political parties” as a major reason for downgrading US credit rating from top shelf AAA status to AA+, the next level down. The rating agency has essentially lost faith in Washington’s ability to work together to address its debt.
Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria . Nevertheless, we view the U.S. federal government’s other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.
The political brinksmanship of recent months highlights what we see as
America’s governance and policymaking becoming less stable, less effective,
and less predictable than what we previously believed.
It is no news that this is not America’s century. China owns it. The downgrade, hours after markets closed on Friday, is the first time for the U.S. since it was granted an AAA rating in 1917.
Now S&P has done it, what is going to happen on Fitch and Moody’s. At least Moody’s is not quick to fire a downgrade if what Mark Zandi, the Chief Economist, statement is any indication in their thinking.
“Investors have voted and are saying the U.S. is going to pay them,” said Mark Zandi, chief economist of Moody’s Analytics. “U.S. Treasurys are still the gold standard.”
Technically, Tekedia thinks the AA+ is even too much. If U.S. has been another country, it would be in the junk status now. No strong parliamentary political leadership, no reserves – all you get is avalanche of problems. One thinks they get away from junk status. It is not a surprise but we wish they get their acts together to avoid being embarrassed further.
The full downgrade report is available here.