S&P Sends Second Warning About Downgrading U.S. Credit Rating

Posted: Jun 21, 2011 7:07 PM

Standard and Poor's credit rating agency has issued a second warning to the United States about dealing with the nation's spirling debt crisis, warning there is a 1 in 3 chance the United States' AAA credit rating could be downgraded if a deal isn't reached. The first warning came just over two weeks ago. It's day 782 since Senate Democrats introduced a budget and with continued stauling from Majority Leader Harry Reid and lack of leadership coming from the White House, uncertainty surrounding the economy is getting worse in every sector, not to mention the growing U.S. debt is directly connected to slow economic growth.

The risks of the U.S. losing its prized triple-A rating over the medium term have increased as the country faces a political impasse and nears its debt ceiling, Standard and Poor's said on Tuesday.

While the ability to adapt both fiscal and monetary policy was a positive for the United States, the risk of a credit rating downgrade had increased due to a lack of political consensus on how to employ that flexibility, Moritz Kraemer, head of sovereign credit ratings for Europe at Standard & Poor's, said on Tuesday.

"The problem is this flexibility needs to be employed and for that you need political consensus. That's not very visible right now," he said.

IMF economist Paul Mills also took a negative line on the politics surrounding the U.S. debt situation, speaking at the conference.

"I don't think the debate has yet even begun to understand how big a fiscal retrenchment is going to be needed," Mills said.