Obama's reassurance over shock downgrade
The Obama administration and the rating agency Standard & Poor's (S&P) escalated their war of words over the downgrade of US government debt, as the White House sought to deflect blame for the loss of the country's historic AAA credit rating.
With financial markets reacting to Friday's downgrade for the first time yesterday, and politicians continuing to trade blows over who was to blame, President Barack Obama insisted: "Markets continue to believe our credit status is AAA."
With the Dow Jones falling to nearly 3% mid-way through trading yesterday, the president promised to use the shock of the debt downgrade to resurrect his plan for a bigger, long-term deal that will cut the deficit over the next 10 years, the kind of deal he failed to achieve earlier this month. The Dow eventually closed 5.5% down last night.
But S&P came out swinging, saying that the political dysfunction on display during the recent debt ceiling debate showed no sign of abating.
The US is unlikely to regain its AAA rating for years, if not decades, it said.
In fact, there is a one-in-three chance of a further downgrade later this year, the agency added, if the bipartisan committee, charged with coming up with a $1.5trn (£919bn) deficit reduction plan, fails to get agreement by November and the US Congress repudiates some of the other cuts that have been planned.
As if to underline S&P's point, politicians continued to swap blame and insults for the loss of a top-notch credit rating that the country has held for 70 years.
Democrats alighted on the phrase "Tea Party downgrade" to describe the situation, blaming the insurgent right-wingers inside the Republican party for using the threat of default to win political concessions, including ruling out tax rises that might ease the government's financial problems.