8 Aug 2011

Warning US credit could be downgraded again

4:32 pm on 8 August 2011

Standard Poor's says the credit rating of the United States could be downgraded again.

The rating agency lowered America's long-term credit rating from AAA to AA+ on Friday, largely because of the divisive politics in Washington and the failure to contain the country's debt.

Standard Poor's managing director John Chambers said action by the US over the next six to 24 months will be watched closely and it will take some time for the country to recover its AAA rating.

The agency warned there is a one-in three chance that the US credit rating would be further downgraded.

The White House described Standard Poor's approach to calculating the downgrade as amateurish.

''It smacked of an institution starting with a conclusion and shaping any argument to fit,'' Gene Sperling, the head of President Barack Obama's National Economic Council said at the weekend.

But Mr Chambers says America's economic management has been consistently poor.

Democrats are blaming conservative anti-tax members in Congress for contributing to the political gridlock, labelling it the Tea Party downgrade. Republicans say both sides are to blame, but that Mr Obama is largely responsible.

Professor Benjamin Friedman, of Harvard University, believes Standard Poor's made the right decision, telling Radio New Zealand's Morning Report programme on Monday it is not so much an economic matter as a political one.

Professor Friedman said there is a very good case for the action taken by Standard Poor's, but it should not be assumed that other credit rating agencies, such as Moody's and Fitch, will follow suit.