A senior administration official confirms to Business Insider that S&P gave notice to the White House that it intended to downgrade the US AAA rating today.
The official confirmed that the White House pushed back hard, claiming that S&P’s analysis was off by “trillions,” adding that S&P is “reconsidering.”
According to WSJ, After the Treasury pointed out the maths error to S&P, which re-checked its maths and confirmed the error. However this doesn’t mean that S&P will change its mind.
Now to step back for a second, Remember, during the debt ceiling fight, S&P warned that there was a 50/50 chance of a downgrade if spending weren’t cut by at least $4 trillion dollars. Both Fitch and Moody’s have both come out affirming the US AAA.
The popular thinking on this is that its impact on markets would be less significant than the political impact to Obama.
This summary from CNN Producer Vaughn Sterling, cites John King, and was confirmed by the White House source:
A senior Obama administration official tells CNN tonight that the ratings agency Standard & Poors served notice Friday afternoon it planned to downgrade the US government’s AAA credit rating. But the official said the agency is reconsidering after the administration challenged S&P’s analysis of the government’s revenue and deficit picture.
The source, a senior official involved in the discussions, insisted the agency was off by “trillions” in its economic model.
Update: CNBC confirms that S&P acknowledged its maths error, but may downgrade anyway by “revising its rationale”
The following is a press release from Standard & Poor’s:
– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.
– We have also removed both the short- and long-term ratings from CreditWatch negative.
– The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilise the government’s medium-term debt dynamics.
– More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
– Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.
– The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
UPDATE: Standard & Poor’s downgrade U.S. debt to ‘AA+’ from ‘AAA’ Friday night.
A source familiar with matter, said the ratings agency’s analysis estimated about $2 trillion in extra discretionary spending over the coming years.
The source said there was shift in the S&P rationale from numerical analysis early in the day Friday to a statement on the nation’s political process in the final version — adding that it raises doubts about the agency’s credibility.
The source said the ratings agency seems bent on making the downgrade, despite the numerical discrepancy, because the media was expecting an announcement.
The source said S&P is not basing its decision on any information that is not in the markets — and that the agency reached a different conclusion than Moody’s and Fitch based off the same information.
The source said discussions with S&P over the debt rating involved the Treasury Department only, not The White House.
The source added that because of the top ratings from Fitch and Moody’s, Treasuries should still qualify as collateral in market situations.
UPDATE: S&P’s John Chambers on CNN says “It’s going to take a while to get back to AAA.”
Chambers said “we think the political settings are strong, but not quite as strong as other sovereigns.” He adds that the ratings agency’s decision was based on facts.
Chambers acknowledged the $2 trillion error caught by Treasury, but said the decision to downgrade was still substantiated.
UPDATE: Reuters: President Obama was briefed in advance on S&P downgrade before flying to Camp David in afternoon, continues to get updates – administration official
UPDATE: S&P’s David Beers: “It’s always possible the rating will come back, but we don’t think it’s coming back any time soon.”