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| S&P says it may downgrade the US's triple-A debt rating | S&P says it may downgrade the US's triple-A debt rating |
| (40 minutes later) | |
| Standard & Poor's has become the latest ratings agency to issue a warning of a possible downgrade to the US's debt rating. | |
| It said there was a "one-in-two" chance that it may cut the US's AAA rating if a deal to raise the government's debt ceiling is not agreed upon soon. | It said there was a "one-in-two" chance that it may cut the US's AAA rating if a deal to raise the government's debt ceiling is not agreed upon soon. |
| The warning comes as cross-party talks in Washington have failed to reach a consensus on the issue. | The warning comes as cross-party talks in Washington have failed to reach a consensus on the issue. |
| The US has until 2 August to raise government borrowing limits. | The US has until 2 August to raise government borrowing limits. |
| "Today's CreditWatch placement signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the US within the next 90 days," href="http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUnitedStatesofAmerica_AAAA_7_14_11.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243932109521&blobheadervalue3=UTF-8" >the agency said. | |
| The agency added that it was concerned the talks between the government and the opposition had become "more entangled" and the two sides were not budging from their respective positions. | |
| "Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling," S&P explained. | |
| No-win situation | |
| As a result of the stalemate between the parties, the government could find itself in a precarious situation. | |
| If it finds itself unable to borrow more money, there is a likelihood that the government will not be able to make scheduled payments on Treasury bills, bonds and other securities held by investors. | |
| S&P said that in such a scenario, the government may be forced to curtail current expenses in an attempt to avoid such a default. | |
| It warned that such a move would have a negative impact on the US economy. | |
| "We think that the effect on consumer sentiment, market confidence, and, thus, economic growth will likely be detrimental and long lasting," it explained. | |
| The agency said that while cutting government spending would dent consumer confidence, a default on payments had far bigger consequences. | |
| "If the government misses a scheduled debt payment, we believe the effect would be even more significant and, under our criteria, would result in Standard & Poor's lowering the long-term and short-term ratings on the US," it said. |