S&P has downgraded the outlook for US government debt from ‘stable’ to ‘negative’ issuing a clear statement on the severity and worries over US national debts.
As the rest of the world scrambled to decrease debt, cut spending and institute austerity measures, the US increased its budget deficit on the theory of accelerating economic growth.
The US Congress and US President Barack Obama have discussed plans for reductions in government spending and solutions toward reducing the deficit, but S&P warned action must take place quickly. A solid plan to reduce US debt must be in place within the next two years or the US may lose its status as a top borrower.
"More than two years after the beginning of the recent crisis, US policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," said Nikola Swann, an analyst at S&P.
On the announcement, US government bond prices and the S&P fell in financial markets. Gold however rose quickly to a new record, $1,496. The US dollar fell sharply against both the Euro and British Pound.
The announcement and market reactions should put a great deal of pressure on Obama and the Republicans to act fast – or else.