News / Economy

Standard & Poor's Explains US Credit Rating Downgrade

An ABC News ticker reads "Standard & Poor's downgrades US credit rating from AAA to AA+" in Times Square on August 5, 2011 in New York City.
An ABC News ticker reads "Standard & Poor's downgrades US credit rating from AAA to AA+" in Times Square on August 5, 2011 in New York City.
Michael Bowman

World financial markets suffered more losses Monday, because of a U.S. credit rating downgrade, and continued European debt concerns and fears of a global economic slowdown. The firm that cut America’s AAA credit rating, Standard & Poor’s, says the United States could regain its top-tier status, but is unlikely to do so for years to come.

International credit rating agency Standard & Poor's says its decision to drop the status of U.S. government one level to "AA+" was based on an analysis of the same five "pillars" in the sovereign rating framework used to determine the creditworthiness of the 126 countries that S&P evaluates.

S&P lists 5 pillars in its Sovereign Rating Framework as:

  • Institutional effectiveness and political risks, reflected in the political score
  • Economic structure and growth prospects, reflected in the economic score
  • External liquidity and international investment position, reflected in the external score
  • Fiscal performance and flexibility, as well as debt burden, reflected in the fiscal score
  • Monetary flexibility, reflected in the monetary score

    (Source: Standard & Poor's Sovereign Rating Framework)

In a conference call, Standard & Poor’s executives sought to provide additional insight into Friday’s bombshell announcement, which the firm had hinted for weeks could be forthcoming, but which nevertheless came as a bitter pill to many in the United States and across the globe.

S&P Managing Director John Chambers said the credit rating downgrade stemmed not only from runaway U.S. deficits and national debt, but also the expectation that America’s debt burden will grow heavier in the future. In particular, Chambers pointed to Washington’s inability to overcome political obstacles and enact aggressive fiscal reforms.

“We do not foresee under anything but the most optimistic forecasts will the debt-to-GDP [gross domestic product] ratio of the United States government stabilize in the forecast horizon,” he said.

Chambers acknowledged that there are other countries, such as France, with even-grimmer debt situations than the United States that are retaining their AAA credit rating. But he noted that, unlike the United States, France has already undertaken significant reforms that are expected to halt and eventually reverse its growing debt burden as a share of economic output.

S&P executives said five countries, including Canada, Sweden and Australia, managed to regain a AAA rating after falling to AA+, as the United States did last week. But they noted that the quickest rating recovery took nine years to materialize, and came after enacting significant reforms to improve finances and boost economic output.

David Beers, who heads Standard and Poor’s sovereign credit rating unit, says the United States has yet to demonstrate its capacity and commitment to change.

“Given the nature of the debate currently in the country and the polarization of views around fiscal policy right now, we do not see anything immediately on the horizon that would make this the most likely scenario - an upgrade back to AAA again,” Beers said.

The S&P downgrade of the United States can be seen as political commentary from a financial perspective, according to the head of California-based PIMCO global investment company, Mohamed El-Erian, who spoke on Bloomberg Television.

“The S&P downgrade is not really about the ability of the U.S. to meet its [debt] payments," El-Erian explained. "No one doubts the ability of the U.S. to meet its payments. It is about the ability of its policymakers to get their arms around the problems, and put the country back on the path of growth, jobs, and prosperity. And until they do that, we [the United States] risk further downgrades.”

El-Erian says the S&P downgrade will have significant psychological and economic effects for the world economy.

“This is a further hit to business confidence and to household confidence," he noted. "It comes at a fragile time for the economy, and it is not a surprise that most analysts are busily revising down their growth estimates, and there has been so much talk over the weekend of recession.”

Late last month, the Commerce Department said the U.S. economy expanded at an annual rate of 1.3 percent during the second quarter of the year - an anemic pace that, even before the S&P downgrade, had some economists worried about the possibility of a stalling economic recovery.

Related video report by Jim Randle

You May Like

Photogallery Belgian Security Measures Foreshadow New Normal for Europe

Rising threat of terrorism, disaffected Muslim populations and open borders, along with refugee, migrant crisis, are creating perfect storm for Europe, which some analysts fear continent is ill-suited to weather

Competing Claims of Responsibility for Mali Hotel Attack

Malian authorities ask public for help in identifying gunmen killed in attack, amid conflicting claims of responsibility from multiple jihadist groups active in the country

Video Debt-ridden Refugees Await Onslaught of Lebanese Winter

Aid agencies are attempting to reduce potentially devastating consequences of freezing conditions and snowstorms that killed eight last year, including three Syrian refugees

This forum has been closed.
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
After Paris Attacks, France Steps Up Fight Against ISi
November 24, 2015 3:04 AM
The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video After Paris Attacks, France Steps Up Fight Against IS

The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video US, Cambodian Navies Pair Up in Gulf of Thailand

The U.S. Navy has deployed one of its newest and most advanced ships to Cambodia to conduct joint training drills in the Gulf of Thailand. Riding hull-to-hull with Cambodian ships, the seamen of the USS Fort Worth are executing joint-training drills that will help build relations in Southeast Asia. David Boyle reports for VOA from Preah Sihanouk province.

Video Americans Sharpen Focus on Terrorism

Washington will be quieter than usual this week due to the Thanksgiving holiday, even as Americans across the nation register heightened concerns over possible terrorist threats. VOA’s Michael Bowman reports new polling data from ABC News and the Washington Post newspaper show an electorate increasingly focused on security issues after the deadly Islamic State attacks in Paris.

Video World Leaders Head to Paris for Climate Deal

Heads of state from nearly 80 countries are heading to Paris (November 30-December 11) to craft a global climate change agreement. The new accord will replace the Kyoto Protocol on Climate Change that expired in 2012.

Video Uncertain Future for Syrian Refugee Resettlement in Illinois

For the trickle of Syrian refugees finding new homes in the Midwest city of Chicago, the call to end resettlement in many U.S. states is adding another dimension to their long journey fleeing war. Organizations working to help them integrate say the backlash since the Paris attacks is both harming and helping their efforts to provide refugees sanctuary. VOA's Kane Farabaugh reports.

Video Creating Physical Virtual Reality With Tiny Drones

As many computer gamers know, virtual reality is a three-dimensional picture, projected inside special googles. It can fool your brain into thinking the computer world is the real world. But If you try to touch it, it’s not there. Now Canadian researchers say it may be possible to create a physical virtual reality using tiny drones. VOA’s George Putic reports.

Video New American Indian Village Takes Visitors Back in Time

There is precious little opportunity to experience what life was like in the United States before its colonization by European settlers. Now, an American Indian village built in a park outside Washington is taking visitors back in time to experience the way of life of America's indigenous people. Carol Pearson narrates this report from VOA's June Soh.

Video Even With Hometown Liberated, Yazidi Refugees Fear Return

While the northern Iraqi town of Sinjar has been liberated from Islamic State forces, it's not clear whether Yazidi residents who fled the militants will now return home. VOA’s Mahmut Bozarslan talked with Yazidis, a religious and ethnic minority, at a Turkish refugee camp in Diyarbakır. Robert Raffaele narrates his report.

Video Nairobi Tailors Make Pope Francis’ Vestments

To ensure the pope is properly attired during his visit, the Kenya Conference of Catholic Bishops asked the Dolly Craft Sewing Project in the Nairobi slum of Kangemi to make the pope's vestments, the garments he will wear during the various ceremonies. Jill Craig reports.

Video Cross-Border Terrorism Puts Europe’s Passport-Free Travel in Doubt

The fallout from the Islamic State terror attacks in Paris has put the future of Europe’s passport-free travel area, known as the "Schengen Zone," in doubt. Several of the perpetrators were known to intelligence agencies, but were not intercepted. Henry Ridgwell reports from London European ministers are to hold an emergency meeting Friday in Brussels to look at ways of improving security.

Video El Niño Brings Unexpected Fish From Mexico to California

Fish in an unexpected spectrum of sizes, shapes and colors are moving north, through El Niño's warm currents from Mexican waters to the Pacific Ocean off California’s coast. El Nino is the periodic warming of the eastern and central Pacific Ocean. As Faiza Elmasry tells us, this phenomenon thrills scientists and gives anglers the chance of a once-in-a-lifetime big catch. Faith Lapidus narrates.

Video Terrorism in Many Forms Continues to Plague Africa

While the world's attention is on Paris in the wake of Friday night's deadly attacks, terrorism from various sides remains a looming threat in many African countries. Nigerian cities have been targeted this week by attacks many believe were staged by the violent Islamist group Boko Haram. In addition, residents in many regions are forced to flee their homes as they are terrorized by armed militias. Zlatica Hoke reports.

Video Study: Underage Marriage Rate Higher for Females in Pakistan

While attitudes about the societal role of females in Pakistan are evolving, research by child advocacy group Plan International suggests that underage marriage of girls remains a particularly big issue in the country. VOA’s Ayesha Tanzeem reports how such marriages leads to further social problems.

VOA Blogs

World Currencies


Rates may not be current.