The credit rating of the United States has been downgraded from triple-A for the first time in the nation’s history.
The unprecedented blow to the world’s largest economy, which could lead to increased borrowing costs for the US, was announced by ratings agency Standard and Poor’s (S&P) who cited concerns over the superpower’s budget deficit.
Only last week the US Congress voted to increase the level of allowable debt that can be run up by the US Treasury. However S&P has expressed fears that the plan, which involves savage cuts to public spending over a ten year period, did not go far enough.
“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement.
The plan agreed savings of just over $2 trillion over ten years, S&P had demanded double that. The agency has not ruled out dropping the US rating further.
The news of the downgrade from AAA to AA+ brought criticism of America’s handling of its debt problems by the Chinese who are owed $1 trillion by the US. The Chinese have expressed fears that the money may not be paid back.
An official Chinese news release said: “International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,”
Li Jie, a director at the reserves research institute at the Central University of Finance and Economics said: “China will be forced to consider other investments for its reserves. U.S. Treasuries aren’t as safe anymore”
The downgrade will be acutely embarrassing for President Barak Obama and is sure to be a major campaign issue in the next presidential election which will take place in fifteen months.
The news follows a turbulent week for global stock markets which witnessed dramatic falls following the escalation of both Spain and Italy’s serious debt problems.