U.S. President Barack Obama said Monday that the recent downgrade of America's credit rating by a key rating agency, and the impact that has had on global financial markets, underscores the importance of further steps to deal with the nation's debt and deficit problems.
The president delivered his statement as U.S. markets were suffering sharp losses on top of last Friday's 500 point drop, and following declines on Monday in major stock indexes in Europe and Asia.
Speaking as the Dow Jones Industrial Average passed the 450 point loss mark, President Obama referred to Friday's downgrade of the nation's credit worthiness from AAA to AA by the Standard & Poor's rating agency. He said it was due more to doubts about the ability of the U.S. political system to act after weeks of political wrangling, rather than the ability of the United States to pay its debts.
Saying markets and global investors continue to believe that America's credit rating is AAA, Obama said the downgrade underscores the need to continue getting the nation's fiscal house in order.
"The fact is we didn't need a rating agency to tell us that we need a balanced, long term approach to deficit reduction," said President Obama. "That was true last week; that was true last year; that was true the day I took office."
Obama said it was clear that a prolonged debate over raising the U.S. government's borrowing limit, in which the threat of default was used as a "bargaining chip" could damage the U.S. and global economies.
This, he said, along with a string of economic disruptions in Europe, Japan and the Middle East, has roiled markets, dampened consumer confidence and slowed economic recovery.
President Obama said defense and domestic spending cuts in the recent debt ceiling compromise must be followed by further tax reforms and "modest adjustments" to programs such as Medicare, which, he said, are achievable without radical steps.
Americans are worried about the future, Obama said, but the real test is how the U.S. responds to economic challenges.
"How we respond to those tests - that is entirely up to us," said Obama. "Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a AAA country."
Standard & Poor's defends the U.S. rating downgrade, saying it in line with increasing U.S. debt levels and the inability of Congress and the president to achieve political consensus.
Treasury Secretary Timothy Geithner said S&P used "terrible judgment," and that U.S. treasury securities continue to be an absolutely safe investment.
President Obama said Monday he hopes that the Standard & Poor's downgrade will inject a renewed sense of urgency for a yet-to-be-formed bipartisan congressional committee to reach a compromise. The so-called super committee is supposed to provide its recommendations by November for another $1.5 trillion in spending reductions beyond the approximate $900 billion in initial cuts. If no agreement is reached, automatic cuts would occur.
Mr. Obama said he soon will be outlining proposals for the congressional committee to consider in the next stage of the debt and deficit-cutting deal.
White House spokesman Jay Carney:
"He will be contributing to that process, not driving it or directing it," he said.
In his remarks, President Obama referred again to what he called a lack of political will in Washington and an "insistence on drawing lines in the sand" that he said needs to be changed as the deficit and debt debate moves forward.