Standard & Poor's has lowered its long-term credit rating on the United States from AAA to AA-plus. It also says the outlook on the long-term rating is negative. The ratings agency says its action comes because of the prolonged controversy over raising the debt ceiling and other fiscal policy. Host Scott Simon talks with NPR business reporter Tamara Keith about the downgrade.
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SCOTT SIMON, Host:
This is WEEKEND EDITION from NPR News. I'm Scott Simon. The credit rating of the United States of America has been downgraded by the ratings agency Standard & Poor's. Yesterday, S&P lowered it one notch from AAA to AA-plus. S&P cited the political fight over the debt ceiling as a sign that the nation's political leaders just aren't serious about addressing long-term debt. We're joined now by NPR business reporter Tamara Keith. Tamara, thanks for being with us.
TAMARA KEITH: Absolutely.
SIMON: And, of course, this fight has been going on for months between the Obama administration; Republicans and Democrats in Congress. Why did S&P act now?
KEITH: Well, they watched the fight, they didn't like what they saw. They just feel like the differences between Democrats and Republicans are going to be extraordinarily difficult to bridge and they felt that the deal just didn't go far enough.
SIMON: Well, what would have impressed them?
KEITH: Well, for some time now analysts at S&P have said that they were looking for a larger debt reduction deal that would bring the deficit down by something more like four trillion dollars over the next decade. And Congress and the president settled on about $2.4 trillion, which is significantly less. Nine hundred billion in discretionary and defense cuts, and then this so-called supercommittee is being formed to find another $1.5 trillion over the next couple of months. And it's important to note here that S&P is staying agnostic on the question of where these larger deficit reductions should come from spending cuts or revenue increases. But they are saying that everything needs to be on the table so that - includes entitlements like Medicare and Social Security, as well as revenue.
SIMON: The Obama administration was openly indignant when the announcement was made; spokesman referring to it as I guess a facts-be-damned decision and they questioned the downgrade.
KEITH: They did. And part of the reasons that they questioned it is that S&P came to the administration yesterday afternoon, said here's what we're planning to do. And Treasury Department checked the math and said, whoa. whoa, whoa, whoa, you're off by about two trillion dollars here. They said S&P was assuming that the long-term deficits would be much higher than they actually would be. Two trillion is a big difference. S&P adjusted their math and said it didn't change anything, that their ratings downgrade is based on politics more than numbers. And part of their statement, they said the political brinksmanship of recent months highlights what we see as America's governance and policy-making becoming less stable, less effective and less predictable than what they previously believed.
SIMON: How are congressional leaders reacting?
KEITH: Well, leaders on both sides, they're seeing in this downgrade what they want to see. So House Republican Speaker John Boehner said in a statement that he hopes this is a wake-up call for Washington Democrats and he focused on the part of the S&P statement that talked about reforming entitlements. And then Senate Majority Leader Harry Reid focused in on the need for a balanced approach, and talked about closing taxpayer-funded giveaways to billionaires and companies and corporate jet owners. So, they're basically keeping up the partisan discussion.
SIMON: Tamara, do we know what happens on Monday, when not only the trading bell rings on Wall Street, but somebody might want to buy a car, somebody might want to buy a home or sell a home.
KEITH: Immediately, there could be a strong reaction on Wall Street. You can never predict what will happen and markets move on all kinds of things, much less significant than this one, and this is a big, big psychological thing that's just happened. But immediately, we probably won't see an impact on interest rates, and at least not immediately. The reality is this fight has been going on for months and people have still been buying treasuries like crazy.
SIMON: NPR's business reporter Tamara Keith. Thanks so much.
KEITH: Thank you. Transcript provided by NPR, Copyright NPR.