U.S. Treasury hits back against S&P rating downgrade

^- ⁺ A^- A⁺ 08/08/2011

The U.S. Treasury Friday night hit back against a Standard and Poor's downgrade of U.S. top-notch credit rating, saying that the agency's judgment was flawed.

"A judgment flawed by a 2 trillion U.S. dollars error speaks for itself," a spokesperson of the Treasury said in a short statement.

The global rating agency stripped the world's largest economy of its AAA long-term sovereign credit rating and lowered it by one notch to AA-plus.

"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," the S&P said in a research report.

"The outlook on the long-term rating is negative," noted the agency, which means that it might further lower the U.S. credit rating.

"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," added the S&P.

"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," according to the report.

U.S. President Barack Obama Tuesday signed a bipartisan bill on raising the nation's debt limit and cutting the deficit by more than 2.1 trillion dollars into law, hours before a crucial deadline to avoid a catastrophic default, ending a months-long perilous stalemate.

But the 2-trillion-dollar-plus deficit-cutting package put together by lawmakers and the White House still fell short of the 4 trillion dollars cited by S&P to avoid a downgrade of the top-notch credit rating.

The U.S. Federal Reserve said Friday night that the downgrade of S&P would not affect the treatment of Treasury securities for risk-based capital purposes or under other bank rules.

"For risk-based capital purposes, the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change," the Fed said in a statement.

Source: vietnamnet/Xinhua

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