The rating is currently AA+ with a negative outlook, with the Agency citing not just the budget deficit as the reason behind the downgrade, but also the way the reduction of its debt levels has been managed.
In its official announcement, S&P’s primary credit analyst, Nikola Swann, said: “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 to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.”
Elsewhere in the announcement, Swann talks about “political brinksmanship” and the statutory debt ceiling and the threat of default becoming “political bargaining chips”.
The downgrade comes after a number of agencies, S&P’s included, confirmed a number of weeks ago that there was the potential for the US sovereign debt problems to force a downgrade. The fact that it took until 12 hours before the 2 August deadline for a decision to be agreed by Republicans and Democrats forced encouraged S&P’s to actually make the downgrade.
The downgrade does not have a material impact on the US debt position itself, but many are now looking hard at the reaction to it of overseas governments, particularly China and Japan, the two largest holders of US Treasuries.
