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Congress to blame as US cut to AA+

Saturday 6 August 2011 - by Will Henley

The United States has been shorn of its coveted triple-A sovereign credit status by leading rating agency Standard & Poor's for the first time ever.

Blaming weeks of politicking and instability in Congress, the agency cut the country's long-term debt rating by one notch to AA+, with a "negative" outlook, late Friday night.

The move comes just over three days after legislation was passed to raise the country's debt ceiling and avert an unprecedented default.

However S&P's dismissed the Budget Control Act, passed Tuesday, as not going far enough. In a further blow for President Barack Obama, it also warned that further downgrades could still be on the horizon.

Banks and other financial institutions will learn on Monday how their ratings are to be impacted by the sovereign downgrade, it said.

The cut sets S&P's apart from both Fitch and Moody's, which opted to affirm the country's AAA score earlier this week.

In its statement, Standard & Poor's said: "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.

In a damning indictment of the horse-trading that has gone on between Republicans and Democrats in recent weeks, it said it is less convinced about the "stability and predictability" of the political system to solve its fiscal problems than when it first assigned it a negative outlook in April.

S&P's accuses political leaders of using the debt ceiling and threat of default as "political bargaining chips" and warned that without deeper cuts or new revenues, through tax rises and the expiry of Bush-era tax cuts, the chances of a return to triple-A is reduced.

"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," it said.

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