S&P Downgrade: Does It Portend a Death Spiral?

By:  Bob Adelmann
08/08/2011
       
S&P Downgrade: Does It Portend a Death Spiral?

Standard and Poor’s was blunt in its assessment of America’s deteriorating financial condition when it announced Friday night that it was cutting its credit rating on United States’ Treasury securities from AAA to the second-tier AA+, with a negative outlook.

S&P said: "Progress [in] containing the growth of public spending, especially on entitlements, or on reaching an agreement on raising revenues, is less likely than we previously assumed.... The fiscal consolidation plan [Budget Control Act of 2011] that Congress and the Administration agreed to this week falls short of the amount we believe is necessary to stabilize the general government debt burden.... Elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating." (Emphases added.)
 

Standard and Poor’s was blunt in its assessment of America’s deteriorating financial condition when it announced Friday night that it was cutting its credit rating on United States’ Treasury securities from AAA to the second-tier AA+, with a negative outlook.

S&P said: "Progress [in] containing the growth of public spending, especially on entitlements, or on reaching an agreement on raising revenues, is less likely than we previously assumed.... The fiscal consolidation plan [Budget Control Act of 2011] that Congress and the Administration agreed to this week falls short of the amount we believe is necessary to stabilize the general government debt burden.... Elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating." (Emphases added.)

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Photo: New York Stock Exchange

 

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