Standard & Poor’s credit-rating downgrade of the U.S. has sent shockwaves across America, with the worst to come possibly Monday morning when the markets open. But what might happen in the future as things stand now?
On Fox News Channel Saturday, S&P Sovereign Ratings Committee Managing Director John Chambers explained the rating agency’s decision and what factors played a role.
“[T]he rating was motivated by a number of factors,” Chambers said. “One was the political gridlock in Washington, which makes us think it is going to be difficult for elected officials to put the fiscal profile of the U.S. government on a long-term sustainable path. And part of it was because of the fiscal path itself — debt-to-GDP at the all-in level, the states and local governments and federal governments in that of liquid assets is about 75 percent of GDP. And that’s going to trend up. That’s going to trend up over the next decade unless we get additional fiscal measures than what we got on the table now.”
Chambers said had the U.S. government managed to find $4 trillion in cuts, versus just the $2 trillion currently on the table with the latest agreement, it could have staved off a downgrade from the ratings agency. He also explained the “negative outlook” label S&P had assigned to the United States.
“The negative outlook speaks to a six-to-24 month time frame. The administration is looking for additional measures on top of the $2.1–$2.4 trillion that we have with this current agreement — the Budget Control Act of 2011,” Chamber said.
With that negative outlook, he said the U.S. government could face further downgrades. (RELATED: Christina Romer lets loose on credit downgrade: We’re ‘pretty darn fucked’)
“You could go down more,” he said. “[T]he time frame is six months to 24 months and the definition is at least a one-in-three probability.”
Chambers explained it would take some time for the U.S. to regain its formerly sterling AAA rating.
“There have been five governments that have regained AAA,” Chambers said. “[T]hey’ve regained AAA over course of nine to 15 years.”