What took them so long? S&P finally downgrades U.S. credit outlook to negative

04/18/2011 12:38 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The day started off as contest between the U.S. dollar and the euro to see which was the world’s worst currency.

The euro had the early lead on fears that Greece would have to restructure its debt and worries that the solid showing by euro-skeptics in Finland’s Sunday elections would scupper any Euro Zone rescue package for Portugal.

But Standard & Poor’s downgrade of its outlook for U.S. debt moved the dollar back ahead in that race. The ratings company downgraded its outlook on the country’s AAA rating to negative. In the company’s system that’s equivalent to saying that there’s a 1 in 3 chance that the company will cut the U.S.’s AAA credit rating.

S&P’s negative outlook is a shot across the bow of U.S. politicians. U.S. sovereign debt has been AAA-rated since it was first rated in 1941 and it has never been given a negative outlook since the start of the outlook system.

S&P explicitly linked its negative outlook to politics in Washington. The company said its concern is that the United States won’t address its fiscal problems until after the 2012 elections due to political posturing by Democrats and Republicans in the run up to that election. “We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” S&P said.

Let’s see if the shock of the S&P move changes the budget debate in Washington at all.

 

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