S&P: US facing further downgrade

By Wen Sheng (People's Daily Online)

08:20, August 08, 2011

There's a 1 in 3 chance that the United States' federal credit rating could be downgraded a further notch if its debt troubles erode over the next 6 to 24 months, a Standard & Poor's official said.

The credit rating agency's Managing Director John Chambers told ABC's "This Week" that if the fiscal position of the U.S. deteriorates further, or if political gridlock tightens even more, a further downgrade is possible.

Chambers also said that it would take "stabilization and eventual decline" of the federal debt as a share of the economy as well as more consensus in Washington for the U.S. to win back a top rating. S&P downgraded the US rating last Friday, from AAA to AA+, for the first time.

Former Federal Reserve Chairman Alan Greenspan said he expects the stock market slide to continue in the wake of the S&P decision. 

Appearing on NBC's "Meet the Press" yesterday, Greenspan said markets will take time to bottom out and that he expects a negative reaction today to the S&P action.

But Greenspan also said he doesn't see any risk in investing in the US, adding that the S&P's downgrade won't change that. 

He said the downgrade "hit a nerve" and was damaging to the psyche of the country. But he couldn't foresee a scenario in which the US would default on its debts.

Global policymakers held an emergency conference call yesterday to discuss the twin debt crises in the US and Europe that are causing market turmoil and stoking fears of the rich world sliding back into recession.

After a week that saw US$2.5 trillion wiped off global stock markets, political leaders are under mounting pressure to reassure investors that Western governments have both the will and the ability to reduce their huge and growing public debt loads.

South Korea said finance deputies from the Group of 20 major economies discussed the European debt crisis and US sovereign rating downgrade yesterday.

A Japanese government source said finance leaders from the Group of Seven big developed economies would also discuss the crisis today and may issue a statement afterwards.

The European Central Bank was due to hold a rare Sunday afternoon conference call. 

Washington's Asian allies rallied round the battered economic superpower, with Japan and South Korea both saying their trust in US Treasuries remained unshaken.

However, China, the largest foreign holder of U.S. debt, urged the Untied States to work harder to reduce its debts and clean up its house. 

"The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's Xinhua news agency said in a commentary that criticized U.S. government for its "debt addiction."