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| Subject: 'End bickering' call after US rating cutSunday 7 August 2011, 4:10 | |
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Author: The move - which came after US markets closed |
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Date Posted: Saturday, August 06, 11:57:16am 'End bickering' call after US rating cut tweet8EmailPrint..Topics:Economic News.On Sunday 7 August 2011, 4:10 The White House has called for an end to the political bickering cited as a reason for the first-ever US credit rating downgrade, as US allies voice confidence in the world's largest economy. Standard & Poor's cut the US rating for the first time in history on Friday, from its top-flight triple-A one notch to AA+, saying US politicians are increasingly unable to handle the country's huge fiscal deficit and debt load. The agency added a negative outlook, warning there's a chance the rating could be downgraded further within two years if progress is not made in cutting the huge government budget gap. Washington's allies in Europe and Asia rallied behind it, warning against over-reaction to the downgrade, but China, the largest foreign holder of US Treasuries, slammed US "addiction" to debt. The White House reacted to the downgrade by calling for unity on Saturday, following the acrimonious months-long partisan battle to secure a deal on raising the US debt ceiling and slashing the deficit, which rattled world markets. "We must do better to make clear our nation's will, capacity and commitment to work together to tackle our major fiscal and economic challenges," White House spokesman Jay Carney said in a statement. "The bipartisan compromise on deficit reduction was an important step in the right direction. Yet the path to getting there took too long and was at times too divisive," Carney said. He said President Barack Obama will "strongly encourage" Democratic and Republican lawmakers to put their "common commitment to a stronger recovery and a sounder long-term fiscal path" above "political and ideological differences." S&P said late on Friday the "political brinksmanship" of recent months shows that governance in the country is becoming "less stable, less effective, and less predictable", raising the risks that one day it might not honour its debt. The move - which came after US markets closed, allowing the world to digest the news over the weekend - was the first time the US was downgraded since it received an AAA rating from Moody's in 1917. It has held the AAA S&P rating since 1941. Other G7 nations such as Britain, Canada, France and Germany maintain a triple-A rating. China said on Saturday in a stinging English-language commentary carried by the official Xinhua news agency that it has "every right" to demand Washington address its structural debt problems and safeguard Chinese dollar assets. "To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means," it said. Other Asian nations such as Japan and South Korea reacted cautiously and, along with Australia, warned against over-reaction. Russia and France said they were untroubled by the rating slip, and Britain's Business Secretary Vince Cable called it "entirely predictable". The downgrade came after a strong pushback from the White House, which called S&P's analysis of the economy deeply flawed and politically-based. A Treasury spokesperson alleged there was a $US2 trillion ($A1.92 trillion) error, arguing that S&P admittedly used the wrong baseline and erred on spending plans and debt projections. But John Chambers, chairman of the S&P sovereign ratings committee, defended the decision. "It's a matter of the medium and long-term budget position of the United States that needs to be brought under control," he said on CNN. "This is a problem a long time in the making." The deal finally signed into law by Obama on Tuesday "falls short of what, in our view, would be necessary to stabilise the government's medium-term debt dynamics", S&P said in its ratings statement. "More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned" back in April, it said. "Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising US public debt burden in a manner consistent with a 'AAA' rating." A debt downgrade is a symbolic embarrassment for Obama and the United States, and could raise the cost of US government borrowing - a move that would likely trickle down to most Americans in the form of higher interest rates. But S&P, which based its case in part on the assumption that Bush-era tax cuts would remain in place, also pointed the finger of blame at Republicans who had insisted that no new tax revenue be a part of the debt deal. "We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act," S&P said. There are worries that the downgrade will wreak havoc in global financial markets where the US dollar has long been the most important currency, but some analysts believe the cut will not have much impact. S&P is considered the most influential of the three major rating agencies ahead of Moody's and Fitch - both of which say they continue to review the country's deficit reduction plan for possible downgrades. The plan finally agreed on Tuesday calls for $US917 billion ($A880.04 billion) in cuts over 10 years, but also mandates an as-yet unnamed congressional panel to come up with another $US1.5 trillion ($A1.44 trillion) in cuts by the end of the year. That fell short of what S&P has been saying would merit retaining the AAA rating: $US4 trillion ($A3.84 trillion) in deficit reduction over 10 years that includes both cuts and revenue increases, which Republicans have refused to accept. [ Next Thread | Previous Thread | Next Message | Previous Message ] |