by FauzInfoVids on Aug 6, 2011
Standard and Poor's downgrades rating to AA+ for the first time, as China says US must "cure its addiction to debts".
The United States has lost its top-notch AAA credit rating from Standard & Poor's, in a dramatic reversal of fortune for the world's largest economy.
S&P cut the long-term US credit rating by one notch to AA-plus on Friday, citing the country's looming debt and deficit burden.
US treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.
The outlook on the new US credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.
"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 stabilise the government's medium-term debt dynamics," S&P said in the statement.
The US Treasury hit back against the move, saying there was a $2 trillion error in the agency's calculations.
"There are deep and fundamental flaws with the S&P analysis," an official involved in negotiations with S&P said.
Clark Judge, chairman of the Pacific Research Institute, told Al Jazeera the downgrade had been justified by agency's perception that "the debt deal wasn't good enough".
"I wouldn't call it pressure but they were looking, they were watching, they were seeing where the US government debt situation was going, and they didn't find it adequate to keep a triple-A rating," Judge said.
China criticism
US politicians expressed concern late on Friday about the S&P decision, saying it was a "wake-up call" for a country saddled with more than $14 trillion in debt.
"The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners," Senate Democratic Majority Leader Harry Reid said.
Reid called for the bipartisan committee tasked with finding additional spending cuts to include "members who will approach the committee's work with an open mind - instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding".
China "has every right" to demand the US address its debt problem, the official Xinhua news agency said on Saturday.
In a stinging commentary, Xinhua said Washington needed to "come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone".
China, sitting on the world's biggest foreign exchange reserves of around $3.2 trillion as of the end of June, is the largest foreign holder of US treasuries.
Xinhua said that unless Washington made substantial cuts to what it called "gigantic military expenditure and bloated social welfare costs", the downgrade would simply be a "prelude to more devastating credit rating cuts".
"To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means," Xinhua said.
"The days when the debt-ridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered."
The commentary also hit out at "short-sighted political wrangling", saying Washington had allowed domestic electoral politics to take the global economy hostage.
Market turmoil persists
The move by S&P came as around $2.5 trillion were wiped off the value of global equities this week.
Hopes the European Central Bank will buy the bonds of Italy's heavily indebted government - and better-than-expected US monthly employment data - helped lift markets. But the news was not enough to spur sustained buying after an early bounce.
Wall Street shares gained some support in heavy trading on Friday, a day after indexes posted their worst losses in two years.
The Dow Jones industrial average eked out a small gain, rising 0.5 per cent.
Francis Lun, an independent stock commentator, told Al Jazeera that Asian exporter economies suffered the most in the steep market declines at the end of the week.
"The market is in shock," Lun said. "It's a lose-lose situation, as America pays more on interest and Asia suffers because of lower demands for exports. The only people that benefit are market speculators, while everyday citizens and governments suffer."
Italy, under pressure to help halt the market rout that is endangering the global economy, pledged to speed up austerity measures and social reforms in return for European Central Bank help with funding.
More news follow this link -http://english.aljazeera.net/business/2011/08/201185232814450317.html
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