S&P Downgrades Outlook on U.S. Debt from Stable to Negative

by Marilou Long on April 19, 2011

in Credit Crisis,Debt,Fiscal Policy

Yesterday, S&P revised their outlook on U.S. Debt to “negative” from stable.

This downgrade has caused the equity markets here, and around the world, to decline anywhere between 1.50% and 3.00%. It has also caused our interest rates to rise as investors have sold U.S. Treasuries.

In their press release, S&P stated, “Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.” S&P is concerned about the wide gulf between fiscal hawks who want spending cuts and the current administration. They are also concerned about the time it may take to implement any agreed upon plan. Even the most conservative policy makers are pushing many of our current problems out to the next decade.

While this is certainly unsettling in the near term, the downgrade could be the much needed impetus to push policy makers to make critical cuts to spending in order to bring our fiscal house in order.

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