S&P defends U.S. credit rating downgrade

WASHINGTON -- Standard & Poor's defended its downgrade of the government's credit rating, saying it believes America will keep having problems getting its finances under control, as U.S. lawmakers Saturday traded salvos over who's at fault and why.

S&P said Saturday that the months of haggling in Congress over budget cuts led it to downgrade the U.S. rating. And it isn't confident the government will do much better in the future, even as the U.S. budget deficit grows.

David Beers, S&P's global head of sovereign ratings, said the agency was concerned about the "degree of uncertainty around the political policy process. The nature of the debate and the difficulty in framing a political consensus . . . that was the key consideration."

In addition to the downgrade from AAA to AA+, S&P issued a negative outlook Friday and warned there was a chance it will lower the rating further within the next two years.

President Barack Obama's press secretary, Jay Carney, said Saturday that it's clear Washington "must do better" in tackling soaring deficits and other economic woes. Carney said talks that produced last Tuesday's $2-trillion compromise had been too drawn-out and "divisive."

House Speaker John Boehner (R-Ohio) asserted the downgrade "is the latest consequence of the out-of-control spending that has taken place in Washington for decades."

But Senate Majority Leader Harry Reid (D-Nev.) said it "reaffirms the need for a balanced approach to deficit reduction" including not just spending cuts but higher revenues from ending tax breaks for big corporations and the rich.

China, the largest foreign holder of U.S. debt, issued a scathing condemnation yesterday of U.S. economic practices, saying that "mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad."

But French, British and Russian officials expressed support. "France has total confidence in the solidity of the American economy and in its fundamentals," Finance Minister Francois Baroin said.

Treasury officials were notified by S&P of the imminent downgrade early Friday afternoon and spent the next several hours arguing with S&P. The administration contended that S&P acknowledged at one point making a $2-trillion error in its computations of deficits over the next decade.

But S&P officials said the difference reflected the use of different assumptions about how much spending and taxes will come to over the next decade. They said they decided to use the administration's assumptions since the $2 trillion difference in the deficit numbers was not going to change the company's downgrade decision.

In a Treasury blog posting yesterday, John Bellows, the Treasury's acting assistant secretary for economic policy, said he was amazed by that decision."S&P did not believe a mistake of this magnitude was significant enough to warrant reconsidering their judgment or even significant enough to warrant another day to carefully re-evaluate their analysis," Bellows wrote.