S&P warns it could downgrade U.S. rating

July 14, 2011 at 9:39 PM
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WASHINGTON, July 14 (UPI) -- The credit rating firm Standard and Poor's said Thursday there is a 50-50 chance it will downgrade the U.S. credit rating within three months.

In a statement, the agency said it has placed the federal government on "CreditWatch with negative implications" status, The Washington Post reported. The move is the latest in a series of steps rating houses are taking to apply pressure on the United States to raise the debt ceiling, saying failure to raise the limit could result in a lower credit rating.

Moody's put the United States on notice Wednesday, saying it placed the country's AAA bond rating on review "for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations."

The review likely would be in mid-July unless there is "meaningful progress in negotiations to raise the debt limit," Moody's said in a release.

Prior to Thursday's announcement, Standard and Poor's had already served notice that the U.S. government's credit rating was in trouble if the debt ceiling isn't raised, The Hill reported.

The agency said Thursday's development was an indication of its "view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days."

"The political debate about the U.S.' fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled," the statement said.

Standard & Poor's warned top Democratic senators that it might downgrade the U.S. credit rating if the government must prioritize payments by failing to raise the borrowing limit before the Aug. 2 deadline.

The consideration of downgrading the U.S. credit rating came as Federal Reserve Board Chairman Ben Bernanke urged Congress to raise the debt ceiling, calling a potential default "calamitous."

During testimony before the U.S. Senate Banking Committee Thursday, Bernanke said failure to raise the debt ceiling would be a "self-inflicted wound."

"I think it would be a calamitous outcome, create a very severe financial shock that would have effects not only on the U.S. economy but on the global economy," Bernanke said. "Treasury securities are critical to the entire financial system. … Default on those securities would throw the financial system into potentially into chaos."

At the very least, "we would destroy the trust and confidence that global investors have in U.S. treasury securities as being the safest and most liquid assets in the world," the Fed chairman said. "We're already seeing threats of downgrades from rating agencies. This is a tremendous asset of the United States, the quality and reputation of our treasury securities, and we benefit from it with low interest rates."

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