NEW YORK (CNNMoney) — Credit rating agency Standard & Poor’s on Friday downgraded the credit rating of the United States, stripping the world’s largest economy of its prized AAA status.
In July, S&P placed the United States’ rating on “CreditWatch with negative implications” as the debt ceiling debate devolved into partisan bickering.
To avoid a downgrade, S&P said the United States needed to not only raise the debt ceiling, but also develop a “credible” plan to tackle the nation’s long-term debt.
In its report Friday, S&P ruled that the U.S. fell short: “The downgrade reflects our opinion that the … 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 also cited dysfunctional policymaking in Washington as a factor in the downgrade. “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.”
A Treasury Department spokesman pushed back on the rating change, saying that S&P’s analysis was flawed.
A source familiar with the matter said S&P initially miscalculated the growth trajectory of the nation’s debt, and then went ahead with its downgrade anyway.
The source also said S&P didn’t give enough credit for the debt-ceiling compromise, which paved the way for more than $2 trillion in spending cuts over the next 10 years. Continue reading