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S&P, in historical move, downgrades U.S. credit rating


14:45, August 06, 2011

The Standard and Poor's building in New York, August 2, 2011. The U.S. Treasury Friday night hit back against a Standard and Poor's downgrade of U.S. top-notch credit rating, saying that the agency's judgment was flawed. (Xinhua/Reuters Photo)

NEW YORK, Aug. 5 (Xinhua) -- Standard & Poor's (S&P) Friday downgraded the U.S. credit rating from its top-notch AAA to AA-plus for the first time ever, just days after the U.S. government narrowly escaped an unprecedented debt default.

S&P cut the long-term U.S. credit rating on concerns about growing budget deficits, saying the freshly passed debt reduction plan by U.S. Congress wasn't enough to stabilize the country's debt situation.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

It was the first time that the U.S. credit rating was downgraded since it received an AAA rating from Moody's in 1917. The United States has held the S&P rating since 1941.

The debt downgrade was a blow to and an embarrassment for U.S. President Barack Obama, his administration and the country, and could raise costs of U.S government borrowing.

The U.S. government instantly challenged the downgrade by saying S&P's analysis of its economy was deeply flawed.

The U.S. Treasury said there was a 2-U.S.-trillion-dollar error in the analysis, but stopped short of elaborating.

President Obama signed on Aug. 2 legislation to reduce the fiscal deficit by more than 2 trillion dollars over the next 10 years and raise the U.S. borrowing limit through 2013 after months of wrestling with Congress.

This week, the failure to effectively deal with the political gridlock and address a slowing down economy has led to the worst weekly losses in the U.S. stock markets in two years.

S&P placed U.S. government bonds on review last month and warned there was a 50 percent chance it would downgrade the U.S. rating in the following three months unless the U.S. government and Congress reached a reliable agreement to reduce federal debt.

U.S. Treasuries bonds used to be considered the safest investment worldwide. The downgrade is expected to further spook global investors as they are already struggling to deal with financial turmoils in recent weeks amid an escalating euro zone debt crisis and a stagnated world economic recovery.

While the uncertainty created in Washington contributed significantly to the bad economy, the most fundamental problem continues to be a lackluster housing market, Barry Bosworth, a senior fellow at the Brookings Institution said recently.

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