Standard & Poor’s downgraded its credit outlook for the United States

Monday, 18 April 2011 07:31

Standard & Poor's downgraded its credit outlook for the United States mainly due to congress not reaching an agreement on the budget deficit which has taken almost 200 points off the Dow at time of writing. At this time S & P's AAA rating is still current yet authorities have not made clear how they will tackle long-term fiscal pressures.

S&P said the move signals a chance that it could cut its long-term rating on the United States within two years. It could push up US borrowing costs and put further pressure on the dollar and the government's ability to finance the budget shortfall. A downgrade would also cause a spike in mortgage rates and tighten credit conditions across the economy.

US debt has swelled to more than 60 % of total output in the aftermath of the 2007-2009 financial crisis and with a budget deficit of nearly 10 % and expected to grow the total is expected to swell further. The Obama administration announced plans to trim $4 trillion from the budget deficit over the next 12 years last week, mostly through spending cuts and tax hikes on the rich.

The dollar managed to hold gains against the euro on Monday with traders more focused on debt problems in the EU which was helping support the dollar while the euro has fallen considerably in early US trading.