WASHINGTON >> Standard & Poor’s says it downgraded the U.S. government’s credit rating because it believes the U.S. will keep having problems getting its finances under control.
S&P officials on Saturday defended their decision to drop the government’s rating to AA+ from the top rating, AAA. The Obama administration called the move a hasty decision based on wrong calculations about the federal budget. It had tried to head off the downgrade before it was announced late Friday.
But S&P said it was the months of haggling in Congress over budget cuts that led it to downgrade the U.S. rating. The ratings agency was dissatisfied with the deal lawmakers reached last weekend. And it isn’t confident that the government will do much better in the future, even as the U.S. budget deficit grows.
David Beers, global head of sovereign ratings at S&P, 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."
S&P was looking for $4 trillion in budget cuts over 10 years. The deal that passed Congress on Tuesday would bring $2.1 trillion to $2.4 trillion in cuts over that time.
Another concern was that lawmakers and the administration might fail to make those cuts because Democrats and Republicans are divided over how to implement them. Republicans are refusing to raise taxes in any deficit-cutting deal while Democrats are fighting to protect giant entitlement programs such as Social Security and Medicare.
S&P so far is the only one of the three largest credit rating agencies to downgrade U.S. debt. Moody’s Investor Service and Fitch have both issued warnings of possible downgrades but for now have retained their AAA ratings.
S&P may have gone ahead with a downgrade now to be sure it escapes the kind of criticism the agencies got after the 2008 financial crisis. They were accused of contributing to the crisis because they didn’t warn about the dangers of subprime mortgages. When those mortgages went bad, investors lost billions of dollars and banks who held those securities had to be bailed out by the government.
Asked when the United States might regain its AAA credit rating, Beers said S&P would take a look at any budget agreements that achieve bigger deficit savings. But the history of other countries such as Canada and Australia who saw cuts in their credit ratings, shows that it can take years to win back the higher ratings.
Administration sources, who briefed reporters on condition of anonymity because of the sensitivity of the debt issue, said the administration was surprised by the timing of the announcement, coming just a few days after the debt agreement had been signed into law.
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 their 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. The S&P officials 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 Saturday, 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.
S&P officials said their decision hadn’t been rushed. They noted that S&P had been warning about a potential downgrade since April.
Some critics, the debacle of 2008 still in mind, raised questions about S&P’s actions now.
"I find it interesting to see S&P so vigilant now in downgrading the U.S. credit rating," Sen. Bernie Sanders, I-Vt., said Saturday. "Where were they four years ago?"
Standard & Poor’s roots go back to the 1860s. One of its founders, Henry Varnum Poor, was a publisher of financial information about the nation’s railroads. His company, then called Poor’s Publishing, merged in 1941 with Standard Statistics Inc., another provider of financial information.
S&P’s website said both founding firms warned clients well in advance of the 1929 stock market crash that they should sell their stocks.
The company has been owned by publisher McGraw-Hill Cos. since 1966.