S&P’s warns of further US downgrade

Express (August 08, 2011)

Standard & Poor's managing director (MD) John Chambers said Sunday there is a one in three chance of a further US credit rating downgrade over the next six months to two years.

"We have a negative outlook ... from six months to 24 months," he said on ABC's "This Week."

"And if the fiscal position of the United States deteriorates further or if the political gridlock becomes more entrenched, then that could lead to a downgrade. The outlook indicates at least a one in three chance of a downgrade over that period."

Chambers said that it would take some time for the United States to recover its AAA rating.

"It would take a stabilisation of the debt as a share of the economy and eventual decline. And it would take, I think, more ability to reach consensus in Washington than what we're observing now," he said.

Meanwhile, AFP adds: President Barack Obama's former top economic adviser warned Sunday of a new recession, attacking the recent US credit downgrade as an unwarranted piling on atop an already weak economy.

Larry Summers, former chairman of the White House Council of Economic Advisers, joined the Obama administration in criticising Standard & Poor's first-ever downgrade of the US credit rating from AAA to AA+.

Summers insisted the country could pay its bills and repeated allegations from administration officials that S&P's decision to downgrade was linked to a $ 2.0 trillion error in its calculations and its use of a faulty baseline.

"S&P's track record has been terrible and its arithmetic has been worse," he told the CNN political talk show "State of the Union."

Summers said the major credit ratings agency acted out of "unhappiness with the solutions that are coming out of Congress for critical economic problems," but added that "the United States is going to pay its debts."

He went on to say, however, that rather than blaming the S&P, US leaders should focus on speeding up the economic recovery, getting Americans back to work and avoiding a dreaded double-dip recession.

He also defended Obama's $ 800 billion 2009 stimulus package, saying: "There's certainly a risk of recession, but God knows if we had not pursued these policies, we would be looking at another version of what happened in the 1930s," referring to the Great Depression.

The United States has struggled to recover from its worst downturn in decades, the 2008-2009 recession triggered by the burst of a housing bubble.

S&P argued that the direction of the country's debt load and rising fiscal deficits meant it could no longer be included among the world's most risk-worthy sovereign borrowers.

Critics have cited S&P's various upbeat assessments of companies and debt instruments weeks before they failed -- including the packaged mortgage securities that sparked the 2008 financial collapse.