Standard & Poor’s Says U.S. Outlook is ‘Negative’

Standard & Poor’s downgraded the outlook of the United States to negative today:

“Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,” the agency said in a statement.

Hopefully the folks in Congress will take these types of warnings seriously, because at some point not to far down the road, these warnings will turn into the real deal, and the lavish spending from Congress will be forced to stop and not because they realized that they finally have to be fiscally responsible…

Here is the full statement from S&P:

We have affirmed our ‘AAA/A-1+’ sovereign credit ratings on the United States of America.

The economy of the U.S. is flexible and highly diversified, the country’s effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.

Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.

We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.

ALG President Bill Wilson responds to the S&P downgrade:

“Sovereign credit rating agencies have repeatedly warned the U.S. to get its fiscal house in order or else face a downgrade of its Triple-A credit rating.  Now the agencies are preparing to do just that by taking the first step of downgrading the outlook on U.S. debt to negative.  That means a full credit downgrade is now substantially more likely in the next year or two.

“The time for half-measures has long past.  Credit rating agencies are through issuing warnings, and now are taking action.  But elected leaders have not presented any budget to meet the challenge of an imminent credit downgrade.  The Obama proposal will never balance the budget, and the House-passed budget will take 26 years to do so.  We just don’t have that kind of time.

“With a $14.2 trillion gross national debt that will be larger than the entire economy by year’s end, growing to over $25 trillion by 2021, soon our obligations will become too large to refinance, let alone be repaid.

“S&P is explicitly telling us that ‘[b]ecause the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us,’ that we do not match up to other Triple-A rated nations.  They’re preparing to downgrade us, but we are not prepared to balance the budget any time soon.  Today’s statement by S&P signifies a catastrophic failure of leadership in Washington that is risking the very solvency of the American people.”

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