(The following was released by the rating agency)
July 15, 2011-- Standard & Poor's has placed its 'AAA'
long-term and 'A-1+' short-term sovereign credit ratings on the
United States of America on CreditWatch with negative
-- Standard & Poor's uses CreditWatch to indicate a
substantial likelihood of it taking a rating action within the
next 90 days, or in response to events presenting significant
uncertainty to the creditworthiness of an issuer. Today's
CreditWatch placement signals our view that, owing to the
dynamics of the political debate on the debt ceiling, there is
at least a one-in-two likelihood that we could lower the
long-term rating on the U.S. within the next 90 days. We have
also placed our short-term rating on the U.S. on CreditWatch
negative, reflecting our view that the current situation
presents such significant uncertainty to the U.S.'
-- Since we revised the outlook on our 'AAA' long-term
rating to negative from stable on April 18, 2011, the political
debate about the U.S.' fiscal stance and the related issue of
the U.S. government debt ceiling has, in our view, only become
more entangled. Despite months of negotiations, the two sides
remain at odds on fundamental fiscal policy issues.
Consequently, we believe there is an increasing risk of a
substantial policy stalemate enduring beyond any near-term
agreement to raise the debt ceiling.
-- As a consequence, we now believe that we could lower our
ratings on the U.S. within three months.
-- We may lower the long-term rating on the U.S. by one or
more notches into the 'AA' category in the next three months, if
we conclude that Congress and the Administration have not
achieved a credible solution to the rising U.S. government debt
burden and are not likely to achieve one in the foreseeable
-- We still believe that the risk of a payment default on
U.S. government debt obligations as a result of not raising the
debt ceiling is small, though increasing. However, any default
on scheduled debt service payments on the U.S.' market debt,
however brief, could lead us to revise the long-term and
short-term ratings on the U.S. to 'SD.' Under our rating
definitions, 'SD,' or selective default, refers to a situation
where an issuer, the federal government in this case, has
defaulted on some of its debt obligations, while remaining
current on its other debt obligations. -- We may also lower the
long-term rating and affirm the short-term rating if we conclude
that future adjustments to the debt ceiling are likely to be the
subject of political maneuvering to the extent that questions
persist about Congress' and the Administration's willingness and
ability to timely honor the U.S.' scheduled debt obligations.
TORONTO (Standard & Poor's) July 14, 2011--Standard & Poor's
Ratings Services today said it placed its 'AAA' long-term and
'A-1+' short-term sovereign credit ratings on the United States
of America on CreditWatch with negative implications.
The CreditWatch action reflects our view of two separate but
related issues. The first issue is the continuing failure to
raise the U.S. government debt ceiling so as to ensure that the
government will be able to continue to make scheduled payments
on its debt obligations. The second pertains to our current view
of the likelihood that Congress and the Administration will
agree upon a credible, medium-term fiscal consolidation plan in
the foreseeable future.
On May 16, 2011, the U.S. government reached its
Congressionally mandated ceiling for federal debt of $14,294
billion. Since then, the government has undertaken exceptional
measures to avoid breaching the debt ceiling. Secretary of
Treasury Timothy Geithner wrote, "The unique role of Treasury
securities in the global financial system means that the
consequences of default would be particularly severe.... Even a
short-term default could cause irrevocable damage to the
American economy." The Treasury currently estimates that it will
have exhausted these exceptional measures on or about Aug. 2,
2011, at which time it will either have to curtail certain
current expenses or risk missing a scheduled payment of interest
or principal on Treasury securities held by the public.
Standard & Poor's still anticipates that lawmakers will
raise the debt ceiling by the end of July to avoid those
outcomes. However, if the government is forced to undergo a
sudden, unplanned fiscal contraction--as a result of Treasury
efforts to conserve cash and avoid default absent an agreement
to raise the debt ceiling--we think that the effect on consumer
sentiment, market confidence, and, thus, economic growth will
likely be detrimental and long lasting. If the government misses
a scheduled debt payment, we believe the effect would be even
more significant and, under our criteria, would result in
Standard & Poor's lowering the long-term and short-term ratings
on the U.S. to 'SD' until the payment default was cured.
Congress and the Administration are debating various fiscal
consolidation proposals. At the high end, budget savings of $4
trillion phased in over 10 to 12 years proposed by the
Adminstration, (separately) by Congressional leaders, as well as
by the Fiscal Commission in its December 2010 report, if
accompanied by growth-enhancing reforms, could slow the
deterioration of the U.S. net general government debt-to-GDP
ratio, which is currently nearing 75%. Under our baseline
macroeconomic scenario, net general government debt would reach
84% of GDP by 2013. (Our baseline scenario assumes near 3%
annual real growth and a post-2012 phaseout of the December 2010
extension of the 2001 and 2003 tax cuts.) Such a percentage
indicates a relatively weak government debt trajectory compared
with those of the U.S.' closest 'AAA' rated peers (France,
Germany, the U.K., and Canada).
We expect the debt trajectory to continue increasing in the
medium term if a medium-term fiscal consolidation plan of $4
trillion is not agreed upon. If Congress and the Administration
reach an agreement of about $4 trillion, and if we to conclude
that such an agreement would be enacted and maintained
throughout the decade, we could, other things unchanged, affirm
the 'AAA' long-term rating and A-1+ short-term ratings on the
Standard & Poor's takes no position on the mix of spending
and revenue measures that Congress and the Administration might
agree on. But for any agreement to be credible, we believe it
would require support from leaders of both political parties.
Congress and the Administration might also settle for a
smaller increase in the debt ceiling, or they might agree on a
plan that, while avoiding a near-term default, might not, in our
view, materially improve our base case expectation for the
future path of the net general government debt-to-GDP ratio.
U.S. political debate is currently more focused on the need for
medium-term fiscal consolidation than it has been for a decade.
Based on this, we believe that an inability to reach an
agreement now could indicate that an agreement will not be
reached for several more years. We view an inability to timely
agree and credibly implement medium-term fiscal consolidation
policy as inconsistent with a 'AAA' sovereign rating, given the
expected government debt trajectory noted above.
Further delays in raising the debt ceiling could lead us to
conclude that a default is more possible than we previously
thought. If so, we could lower the long-term rating on the U.S.
government this month and leave both the long-term and
short-term ratings on CreditWatch with negative implications
pending developments. If Congress and the Administration agree
to raise the debt ceiling (with commensurate fiscal
adjustments), we aim to review the details of such agreement
within the next 90 days to determine whether, in our view, it is
sufficient to stabilize the U.S.' medium-term debt dynamics. If
we conclude that the agreement would likely achieve this