Friday, August 5, 2011
Citing the increased burden of rising Federal debt, rating agency Standard & Poor’s downgraded the United States’ long term from AAA to AA for the first time in U.S. history.
Standard and Poor’s is one of three major agencies that assign grades the credit of companies and governments. Last week, during the heat and the rancor of the debt debate in Washington, the agency had threatened the downgrade if the U.S. did not reduce the Federal debt by at least $4 trillion over the next decade.
Instead, Congress passed and President Obama signed, a deal to reduce the debt by at least $2.1 trillion over the next decade.
Treasury Department officials blamed the downgrade on “a serious mathematical error in a draft of the downgrade announcement,” which was given to the government Friday afternoon. The officials argued Standard and Poor’s inadvertently added in $2 trillion to its projection of the Federal debt, significantly overstating the problem confronting the government.
The downgrade comes at an enormous cost. Downgrades of other entities backed by the government such as Fannie Mae and Freddie Mac, the government-controlled mortgage companies, would likely be downgraded, raising rates on home mortgage loans for borrowers.
Dozens of counties and even a handful of states including Maryland, Virginia, and New Mexico, could also be downgraded because of their local economies’ have strong ties to Washington.