Standard and Poor's John Chambers Defends Decision to Downgrade U.S. Credit Rating
WASHINGTON, August 7, 2011— -- Standard and Poor's managing director John Chambers defended his agency's controversial decision to downgrade the credit rating of the United States from AAA, saying there is a "1 in 3 chance" of a further downgrade if the fiscal situation worsens or "if political gridlock becomes more entrenched."
"We've been saying for some time that the fiscal trajectory of the United States was on a bad path," Chambers said in an interview with "This Week" anchor Christiane Amanpour.
"If the fiscal position of the United States deteriorates further or if the political gridlock becomes more entrenched, then that could lead to a downgrade," Chambers added. "The outlook indicates at least a 1 in 3 chance of a downgrade over that period" of the next 6 to 24 months.
Chambers, who serves as chairman of Standard & Poor's sovereign ratings committee, said it may be years before the U.S. recovers its AAA rating, citing examples of countries that took nine to 18 years to get their ratings upgraded after having their credit-worthiness lowered.
"If history is our guide, it could take awhile," Chambers said. "The political gridlock in Washington leads us to conclude that policymakers don't have the ability to put the public finances of the U.S. on a sustainable footing."
On Friday, S&P lowered the United States rating on long-term U.S. debt from a pristine AAA rating to a tier lower, AA+. This is the first time in 70 years that U.S. Treasury debt has not been AAA.
Soon after the downgrade was announced, controversy arose after reports showed that S&P overstated the U.S. debt by $2 trillion.
Maryland Governor Martin O'Malley said he disagreed with the S&P downgrade because of their miscalculation.
"I don't think it's justified in terms of when you look at the math here. They made a $2 trillion mistake. The other rating agencies did not downgrade the U.S. debt because they did not make that $2 trillion mistake," said O'Malley, who is also the chairman of the Democratic Governors Association.
Despite the recent budget deal to cut spending by at least $2.1 trillion over the next 10 years, Chambers said that there still remains pessimism and uncertainty about Washington's ability to address the debt crisis.
As a part of the recent budget deal, a bipartisan "super committee" will be formed to tackle the debt crisis.
Senator Jeff Sessions (R-AL), ranking member of the Senate Budget Committee, says he is confident that the committee will be able to broker an agreement.
"I do believe that committee can function and be successful in the limited goal we've given them," Sessions said.
But Sessions questioned whether the current proposals being discussed will make large enough long-term reductions to the deficit to satisfy S&P.
"S&P is saying it's not enough. It's only about $2 trillion, a little over, when we're going to increase our debt in the next ten years $13 trillion," Sessions said. "So that's why they're concerned. Even the plan is insufficient if successful."
Sessions emphasized the need to cut spending over raising revenues to reach a final agreement on deficit reduction.
"We've got a problem, and we've got to bring that spending down, not increase the burden on the private sector," Sessions said.
But O'Malley disagreed, saying that a combination of spending cuts and raising tax revenues would be required to balance the budget.
"We need a balanced approach, and the extremism, the Tea Party obstructionism here in Washington, is keeping us from restoring that balanced approach that America's always used," O'Malley said.
Chambers said that the lack of agreement among policy makers over how to address growing deficits was a major factor in lowering the United States rating.
"I think as time passes people will come to see that the United States' credit standing is really not quite the same level as the ones that we rate AAA," Chambers said.
