S&P downgrades US credit rating
Credit rating agency cites 'difficulties in bridging gulf between political parties' as major reason for downgrade AAA status to AA+. China: US must cure its addiction to debts by cutting expenditure
Republicans and Democrats quickly doled out blame to each other for the first-ever downgrade in the nation's sterling credit rating, an expected but unsettling move that further clouds prospects for the recovery of the fragile United States' economy.
The back and forth came after Standard & Poor's, one of the world's three major credit rating agencies, cited "difficulties in bridging the gulf between political parties" as a major reason for the downgrade from US's top shelf AAA status to AA+, the next level down. The rating agency has essentially lost faith in Washington's ability to work together to address its debt.
The downgrade, hours after markets closed on Friday, is a first for the US since it was granted an AAA rating in 1917. S&P warned about a downgrade as far back as April. Its decision came just four days after fractious debate over raising the nation's debt ceiling ended in a compromise that would reduce the country's debt by more than $2 trillion. S&P said Friday the cuts did not go far enough.
Whether the downgrade will have a more tangible impact on the economic outlook remains to be seen.
Global response
China roundly condemned the United States for its "debt addiction" and "short sighted" political wrangling and said the world needed a new stable global reserve currency.
In a harshly-worded commentary by the official Xinhua news agency on Saturday, China gave its first official comments on the United States losing its gilded AAA long-term credit rating from Standard & Poor's.
"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," Xinhua said.
China also urged the United States to apply "common sense" to "cure its addiction to debts" by cutting military and social welfare expenditure.
"The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," Xinhua wrote.
Meanwhile, French Finance Minister Francois Baroin said on Saturday that France has faith in the ability of the United States to get out of this "difficult period" and it is too early to say if a G7 meeting will be brought forward.
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