| NEW YORK, April 6
NEW YORK, April 6 Egan-Jones Ratings downgraded
the credit level of the United States as Washington has
struggled to reduce the federal debt burden, which is projected
to surpass the size of the country's economy.
The independent rating firm, which issued the downgrade late
Thursday, said its senior debt rating on the United States is
now AA, its third highest rating, down one notch from AA-plus.
It also maintained a negative watch on the world's biggest
economy as the federal debt load could rise to $16.7 trillion at
the end of 2012. U.S. gross domestic product, in the meantime,
could grow to $15.7 trillion, assuming it would grow at a rate
of 2.5 percent, the firm said.
The firm downgraded the United States for second time in
less than nine months "because of the lack of any tangible
progress on addressing the problems and the continued rise in
debt to GDP," said Sean Egan, co-founder of firm, in an e-mail
Egan-Jones's downgrade did not elicit major market
responses. U.S. government debt prices jumped on Friday after
news of much weaker-than-expected job growth in March renewed
bets the U.S. central bank would embark on more bond purchases
to foster economic growth.
Back in mid-July, Egan-Jones stripped the United States' of
its top AAA-rating amid the debt ceiling fight in Washington
that stoked fears of a federal default.
The three larger rating agencies, however, currently have
higher ratings on the United States than Egan-Jones.
Moody's Investors Service and Fitch Ratings still rate the
United States with their highest credit grade of AAA, although
Moody's has said it could strip the country of its top rating.
In August Standard & Poor's stripped the United States of
its AAA rating, knocking it by a notch to AA-plus. It warned of
a possible further downgrade.
Efforts to contain federal spending and borrowing have been
unsuccessful. A congressional "Super Committee" seeking spending
cuts of $1.5 trillion over 10 years, equal to $150 billion
annually, "was a failure," Egan-Jones said in its report.
"Obviously, the current course is not enhancing credit
quality. Without some structural changes soon, restoring credit
quality will become increasingly difficult," it said.
While the rock-bottom interest-rate climate, a result of the
Federal Reserve's ultra-loose policies, has helped the United
States to finance its federal debt, it could run into trouble
once its borrowing costs rise and the government does not reduce
its debt load, Egan said.
The Fed has clung to a near-zero interest rate policy since
December 2008. It has also purchased more than $1 trillion worth
of Treasuries securities over the past three years, stemming
from its emergency measures to lower mortgage rates and other
long-term borrowing costs to stimulate borrowing and investment.
"Monetizing the debt depresses interest rates in the short
run but does not address underlying credit quality as manifested
by the rapid rise in debt to GDP," Egan said.