U.S. said to be bracing for debt rating downgrade

By Muriel Kane
Friday, August 5, 2011 18:56 EDT
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Update: Rating agency said to be ‘reconsidering’ plan to lower U.S. debt rating

According to ABC White House correspondent Jake Tapper, an anonymous government official has told ABC News that the Obama administration is “expecting and preparing for” a downgrade of its debt rating from AAA to AA or AA+ by the bond rating agency Standard & Poor.

Another source, however, agrees that preparations are under way but insists that the administration is not 100% certain that the downgrade will occur.

CNN has now issued a bulletin, however, stating that Standard & Poor had actually issued notice of a downgrade but was challenged by the administration and “acknowledged some errors” in its “analysis of the government’s revenue and deficit picture.” According to a senior official, the agency’s model had been off by “trillions.”

According to ABC News, the reasons to be given for any downgrade would include “the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction.”

Another source told ABC that “Republicans saying that they refuse to accept any tax increases as part of a larger deal” would also be cited as a factor.

Standard & Poor has been warning of the possibility of a downgrade for the last several months, and there has apparently been extensive negotiation going on behind the scenes.

According to the AFP news agency, however, “A debt downgrade would certainly be an symbolic embarrassment for the Obama administration and the United States, and could raise the cost of US government borrowing. But some analysts have questioned whether a rating cut would impact demand for US debt, have dismissed the raters as having low credibility, and questioned whether the markets would take much notice. Ratings agencies Moody’s and Fitch both reaffirmed their AAA rating of US debt shortly after Obama signed a bill raising the debt ceiling on Tuesday.”

Muriel Kane
Muriel Kane
Muriel Kane is an associate editor at Raw Story. She joined Raw Story as a researcher in 2005, with a particular focus on the Jack Abramoff affair and other Bush administration scandals. She worked extensively with former investigative news managing editor Larisa Alexandrovna, with whom she has co-written numerous articles in addition to her own work. Prior to her association with Raw Story, she spent many years as an independent researcher and writer with a particular focus on history, literature, and contemporary social and political attitudes. Follow her on Twitter at @Muriel_Kane
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