It was hardly a banner day for the nation’s capital, where Congress and the president, already suffering low poll numbers for their inability to work together, endured reprimands and lectures from nations worldwide.
China, a major holder of U.S. debt, berated the United States in an editorial in a state-run newspaper for “its addiction to debts.” In Germany, a news magazine called the downgrade “a public humiliation.”
S&P said Friday night that it had downgraded the U.S. credit rating one notch — from AAA to AA+ — because “political brinkmanship” had made the government’s ability to manage its finances “less stable, less effective and less predictable.”
The agency’s decision was a reflection of the nation’s massive debt burden and its inability to function politically. Although the fallout largely triggered political recriminations, analysts worried that the consequences of the downgrade, while not fully known, could lead to higher borrowing costs for the government and consumers over time.
S&P officials said it is unlikely that the country will regain its top-notch credit rating anytime soon. And if one of the two other ratings agencies — Moody’s Investor Service and Fitch Ratings — followed suit, analysts say, financial markets could erupt in widespread turmoil as investors lose faith in the nation’s ability to meet its financial obligations.
For now, those two agencies say they plan to preserve the AAA rating, although they warned that they could change their view if there is a significant deterioration in the economy or if leaders are unable to find more budget savings.
Still, given S&P’s move, government officials and investors worldwide were bracing for signs of distress that may occur when financial markets open Monday.
The S&P downgrade was announced after a frantic day of contacts between the Treasury Department and the company. S&P had warned for months that it might downgrade the United States if leaders did not come up with a plan to cut the deficit by $4 trillion over 10 years.
S&P noted that the budget deal reached last week — which calls for $2.1 trillion in savings and was considered a crisis-averting breakthrough in Washington — “fell short.”
On Friday, before Obama left for a weekend at Camp David, Treasury Secretary Timothy F. Geithner and National Economic Council Director Gene B. Sperling briefed Obama on the potential downgrade.
On Saturday, the administration quickly moved to cast doubt on S&P’s conclusions, saying it had neglected to recognize that leaders in Washington had made progress despite the political wrangling. Officials also said that S&P’s methodology was “flawed” and that the company had to correct large math errors in an early draft of its report.