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Standard And Poor’s lowers outlook on U.S. debt to "negative"

by Adam Russett on April 18, 2011

Financial intelligence firm Standard And Poor (S&P) recently lowered the outlook on U.S. debt to "negative," which reflects growing fears about the country's inability to pay back its debts. The move may prompt decisive action in Washington. On Wall Street, stocks plummeted due to the new rating, which may end up taking away the nation's AAA rating, according to FoxBusiness.com.

S&P explained that the status of the United States was downgraded because of "very large budget deficits and rising government indebtedness."

"We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013… if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns," the firm said in a statement.

From 2003 to 2008, the budget deficit stayed within a range of 2 percent to 5 percent of the gross domestic product, but the economic crisis of 2009 saw a spike that led the debt to grow to more than 11 percent.

S&P credit analyst Nikola Swann estimates that there is a one in three chance that the U.S. could lose its AAA rating.
However, some financial experts were less than shaken by the verdict.

"There isn't anything that the rating agencies know that the markets don’t already know; this is pure signaling," William Cunningham, co-head of global active portfolio management at Boston- based State Street Corp, told Bloomberg. "It doesn’t really change anything about the market. It just brings the debate forward."

In response, the US Treasury has said that the agency underestimated the country's ability to balance the budget in the coming years, according to the BBC.  

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