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American credit rating downgrade still likely

Published time: August 01, 2011 16:20
Edited time: August 01, 2011 21:16
American credit rating downgrade still likely

American credit rating downgrade still likely

Lawmakers may have hoped that the last-minute debt ceiling deal yesterday saved the US economy, but credit agencies aren’t about ready to say that the dollar is safe from danger.

Hours after lawmakers say they managed to cut a deal to cut $2.4 trillion, two of the top credit agencies are saying they are waiting to see the plan put into stone before they can comment on the status of America’s credit.

Standard and & Poor had been pressing for $4 trillion in cuts to be passed on Capitol Hill, with John Chambers, head of sovereign ratings, saying last week that that would be “a good start.” Weeks earlier they said that the US had a 50-50 chance of having its credit rating downgraded. Now lawmakers have supposedly struck a deal, but it isn’t exactly what S&P had hoped for.

If S&P does decide to downgrade the US credit rating from its current triple-A status, it might mean a long road ahead for the American economy to recover. Australia’s then-triple-A rating was downgraded to AA back in 1986, and it took nearly 20 years for S&P to bring it back up to AAA.

''If the US does lose its rating, it will have to perform better than the triple-A standard for a while in order to get it back,'' Saul Eslake, of Grattan Institute, an economic think tank, tells the Sydney Morning Herald.

Both Moody’s and Fitch have also threatened to downgrade the rating from triple-A, even if a compromise was reached before the August 2 deadline. Moody’s said on Friday that it would most likely take the US off of its negative outlook list as long as a decision was reached before August 2. Now, however, they are waiting to see the debt deal finally hammered out before they offer any comments on the crisis.

Last week, economist Max Keiser spoke to RT and said that even a debt ceiling solution won’t fix America. “The rating on US debt is definitely going to be downgraded,” the host of Keiser Report tells RT. “Rating agencies and other places around the world are flashing that they are going to be downgrading American debt, so that is baked into the cake.”

Even with a raise in the debt ceiling, Keiser said that “nothing that anyone can do is going to stop this.”