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U.S. unlikely to get back AAA rating soon, Standard & Poor's says

August 8, 2011 |  7:40 am

Photo: Standard & Poor's headquarters in New York. Credit: AFP/Getty Images The United States is unlikely to get its AAA rating back any time soon and still faces the possibility of a further downgrade if Washington politicians fail to follow-through on spending cuts, two Standard & Poor's officials said Monday.

In a conference call with investors and analysts around the world, S&P again defended its decision to downgrade the United States to AA+ even as it sought to downplay the significance of the one-notch rating change.

"It's like going from indigo to navy blue,'' said John Chambers, head of S&P's sovereign rating committee.

Still, once a nation's credit is downgraded from AAA, it can take years to recover it -- if at all, S&P said.

"We don't anticipate a scenario at the moment in which the U.S. would quickly return to AAA," said David Beers, the firm's global head of sovereign ratings.

In fact, S&P has placed the United States on a negative watch for possible downgrade again, to AA, in the next two years if spending cuts promised in the debt-ceiling deal don't materialize and the economy slows even more. The watch means there is a 33% chance of a downgrade.

Australia, Canada, Denmark, Finland and Sweden all regained their AAA ratings in recent years after losing them, but the quickest any of them did it in was nine years, he said. They did it through "a sustained period" of deficit reduction.

"It wasn’t only a matter of fiscal reform, it was also a matter of economic reform," he said.

France and the United Kingdom managed to hold on to their AAA ratings because of similarly significant steps to reduce debt.

France, for example, recently raised the retirement age, a move that both helped reduce its long-term deficit projections and showed a willingness by politicians there to take unpopular measures, Chambers said.

"That is an example of well-designed fiscal policy," Chambers said.

In downgrading the United States on Friday, S&P said such steps were unlikely in Washington after the "debacle" surrounding the last-minute increase of the debt ceiling last week.

"We think elected officials across the political spectrum are unable to proactively take measures to put U.S. public finances on a sustainable footing in the same sort of matter as some of our most highly rated governments," Chambers said.


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-- Jim Puzzanghera

Photo: Standard & Poor's headquarters in New York. Credit: AFP/Getty Images