Rising government debt, political uncertainty behind S&P downgrade
Standard & Poor's said Monday it downgraded the U.S. debt rating after the political uncertainty over America's fiscal policy during the debt ceiling debate and the significant levels of government debt, which is set to hit 75% of total GDP in a few years. The ratings giant followed up on a warning issued in July, claiming downgrades to the sovereign credit rating could impact government-sponsored enterprises Fannie Mae and Freddie Mac. When asked how long it will take to move America back to a gilt-edged triple-A , analysts said, in some cases, it has taken sovereign governments as little as nine years and in others up to 18 years. The U.S. rating is still pitched to the downside, and S&P "doesn't anticipate a scenario in which it would quickly return to triple-A," said David Beers, a managing director with S&P. "I want to underscore the extraordinary difficulty that people are having in finding common ground when it comes to fiscal policy and bringing the deficit down," he asserted. Throughout the conference call, S&P's leadership continually reiterated the same message: The downgrade was based largely on political infighting in Washington over fiscal policy and debt levels when compared to GDP and estimations on that same ratio when looking ahead a decade. "Elected officials across the political spectrum are unable to proactively take measures to put U.S. public finance on a sustainable track," said John Chambers, head of S&P's sovereign debt ratings when discussing the agency's decision. Chambers and S&P leadership discussed the reasons for the downgrade Monday explaining the agency bases its analysis on five pillars of financial strength: political risk, economic risk, external risk, debt, fiscal risk and monetary policy risk. The analysts said three of S&P's five pillars remain unchanged in America, but the uncertain political environment and growing debt levels swung the outlook in the negative direction, prompting the downgrade. Based on their analysis, the debate over the debt ceiling was the last straw because it showed policymakers dangerously divided on how to deal with debt issues. S&P noted that it updated its sovereign debt ratings analysis just this year to make all of its methodologies as transparent as possible. But that didn't stop criticism from investors and policymakers over the weekend. Billionaire investor Warren Buffett, who remains a significant investor in U.S. Treasurys, and Treasury Secretary Timothy Geithner publicly questioned the downgrade, with Buffett telling Fox News it makes no sense. "I want our callers to be aware we updated our sovereign debt ratings again this year." He said their method was designed to make "it as transparent as possible," David Beers said. Changes to S&P's sovereign debt rating methodologies were published June 30. Write to: Kerri Panchuk.