Nightly News | August 06, 2011
LESTER HOLT, anchor: Now to the other big story we're following, the unprecedented downgrading of the US credit rating . Standard Poor 's, one of the agencies that rates credit risk , has dropped the US from a AAA rating down to a AA -plus rating and despite Congress finally agreeing on a plan to cut the deficit, S&P has essentially said it's not enough. CNBC's chief Washington correspondent John Harwood is with us from the White House now to tell us more. John :
JOHN HARWOOD reporting: After a week of turmoil in politics and financial markets , Lester , late Friday brought the shock no one wanted. A major rating agency said US debt was no longer the safest in the world. As a bitter debated unfolded in Washington over debt and potential default, Standard Poor 's warned that the White House and Congress needed a $4 trillion deficit reduction plan to keep a AAA rating. But in the final hours, Republicans and Democrats struck a deal just over half that size. Late Friday, Standard Poor 's, one of three major ratings agencies , followed through, lowering its US long-term credit rating one notch to AA -plus. S&P said last night, "The political brinksmanship of recent months highlights what we see as America 's governance and policymaking becoming less stable, less effective, and less predictable." Harsh reactions came quickly. China , a major creditor, said the US must cure its "addiction to debt." Obama administration officials were furious at S&P , saying the agency had initially miscalculated America 's debt levels. Treasury officials point out that Moody's and Fitch , the two other major agencies, are keeping the US rating at AAA . The credibility of the entire industry suffered in the financial crisis three years ago.
ANDREW ROSS SORKIN reporting: Given S&P 's track record and the other ratings agencies going into the financial crisis , missing subprime mortgages, for example, there's a real question as to whether investors are going to give significance and credibility to this downgrade.
HARWOOD: President Obama himself has singled out the same political dysfunction that S&P did, saying we need to do better.
President BARACK OBAMA: Both parties are going to have to work together on a larger plan to get our nation's finances in order.
HARWOOD: But finding a way forward with a long-term debt problem and a shaky short-term economy isn't a sure bet.
Former Representative TOM DAVIS (Republican, Virginia): What works over the long term may not work in the short term, and that's the problem. And to a politician, the long term is two years.
Mr. MARK MELLMAN (Democratic Pollster): Ultimately, the question for voters is do -- can I look ahead around see that things are going to get better or am I looking ahead and seeing things getting worse?
HARWOOD: Now, with Europe facing a full blown debt crisis, America and its allies have begun consultations on what it all means for the global economy. And of course, Washington gets another chance to impress ratings agencies when a special committee of Congress seeks to specify 1.5 trillion in spending
reduction this fall. Lester: John Harwood , thank you.