Credit rating agency Standard and Poor’s cut its outlook on the U.S. government debt on Monday, changing it from “stable” to “negative.” The nation was put on notice that it may drop in bond rating unless it makes concerted attempts to clear out its debt.
“Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,” the credit rating agency said.
The credit outlook downgrade marks a first time in history for the U.S.
Due to the move, the Dow Jones Industrial Average dropped 140 points on Monday while Nasdaq fell nearly 30 points.
While the U.S. has a proven track record of a strong monetary policy with a flexible economy, fiscal policymakers have not done enough to try and alleviate the after effects of the current economic downturn.
“More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” said Standard & Poor’s credit analyst Nikola G. Swann.
The credit rating agency said part of the reason for the warning is that it is unlikely that Congress can come up with a meaningful fiscal plan before the next election cycle in 2012.
“If an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” said the S&P statement.