S&P Downgrades U.S. Credit Rating
MELISSA BLOCK, Host:
And joining me to discuss this move by S&P, our NPR's Marilyn Geewax and Tamara Keith. And, Tamara, let's start with you. There was a lengthy news release that came out this evening from Standard and Poor's. Walk us through more of what the agency said.
TAMARA KEITH: Well, one of the key points is that they said that the plan arrived on the debt deal - arrived on by Congress and the president - didn't tackle either entitlements or raising revenues. They say that they don't favor any particular fast forward, but they are saying - S&P is saying that simply, they don't believe that the U.S. has a handle on its debt situation and that the leadership doesn't have the - hasn't proven that it is willing or able to do what needs to be done, so to speak.
BLOCK: And let's bring Marilyn Geewax into the conversation. Marilyn, it has been rumored for sometime that S&P was going to take just this action again to downgrade the U.S. debt, but let's walk through a little bit of the timing of what led up to this today.
MARILYN GEEWAX: So this has been building for weeks. It's been hinted at, threatened. But now that it actually has arrived, it really opens up so many potential problems. A downgrade of what is supposed to be the world's safest security sets up a lot of potential problems for investors everywhere around the world.
BLOCK: And, Marilyn - yeah. Marilyn, what are some of those potential problems that this ratings downgrade might bring about?
GEEWAX: Well, step number one would be higher interest rates. There's a real potential for that because just like your own credit card, if you have lousy credit, you probably have to pay high interest rate. If you have very good credit, you can tend to get lower interest rate loans. And that's the situation that the United States is in. We have all of these debts that we need to pay, and it's a lot better for us to pay those debts off at a low interest rate. Well, if we're suddenly no longer seen as very safe, those interest rates could rise, that'll increase all of our problems that we're already seeing in Washington. We'll have bigger deficits, bigger - long-term debt problems. This could cost us just to start about $100 billion a year has just been taken away from taxpayers.
KEITH: Melissa, this is...
BLOCK: Yeah. Yeah. Tamara, come on.
KEITH: This is Tamara here. I just wanted to jump in and say that there are two other ratings agencies which have not yet acted and in fact - the other two major ratings agencies - and in fact, after the debt deal was settled and signed, they came out and reaffirmed the AAA rating. So there's sort of a division there even amongst the major ratings agencies. A lot of people out there are unclear on just exactly what the impact will be. It could be that this hits like a big thud, and nothing happened, or it could be exactly what Marilyn is talking about.
GEEWAX: We are in such uncharted waters here that, really, you can't accurately predict what is going to happen. Because as Tamara says, it's almost so amazing that you really don't know - we haven't ever had this happen before. So where we go from here is still very much open to question, but it certainly opens up the possibility for these higher interest rates. And now that one has taken the leap, the other agencies may decide to join in or not. But, you know, it's certainly not a development that could be seen as anything but negative for the country.
BLOCK: It is interesting. The Wall Street Journal is reporting earlier tonight that S&P had gone to the Treasury Department earlier today with numbers that had led them to this conclusion to downgrade the U.S. debt. The Treasury Department apparently came back to them and said you are off by a couple trillion dollars. Go back and do the math again. I don't know what happened at the end of that calculation, but here we are with the debt being downgraded. It does raise the question though, Marilyn, of how the ratings agencies come to their own conclusions about whether to downgrade debt and how you now have Standard and Poor's saying, yes, we're going to do it. The other two, at least so far, is saying, no, we're not going to.
GEEWAX: This is very confusing. You wonder, you know, is there really a math here? I mean, it undermines confidence in both the government as well as the credit ratings agencies. So it's a very - the one thing that businesses hate is uncertainty, and this is a whole lot of uncertainty.
BLOCK: And of course, it comes at the end of a week. Tamara, you were covering the markets over the last couple of days, and we saw a huge volatility today. The markets ended up fairly stable. But yesterday, as we all know, all the indexes tanked. There was a huge drop.
KEITH: Absolutely. And I don't think investors were actually even considering this idea that S&P could lower the rating. The markets were concerned about broad, global debt issues, global sovereign debt issues in Europe, and we're concerned about the state of the U.S. economy, which is the state of the U.S. economy is part of what S&P is responding to here. But I guess there's probably a reason why they did this on a Friday night, to give the markets a couple of days to digest this because - oh, we'd not have wanted to see that today during the day.
BLOCK: Let's bring Don Gonyea into the conversation, NPR's national political correspondent. Don, when you listen to that language it reflects back on a whole of turmoil here in the nation's capital over the last several months and going well before that as well.
DON GONYEA: Certainly - I haven't seen reaction from them yet tonight, because this is all happening too quickly, but certainly they will see this as validation of that position.
BLOCK: And Don, what are you hearing, if anything tonight, from the White House, from anyone in Congress about what this means for them?
GONYEA: But I can tell you this is a big week in Iowa. A week from tomorrow is the annual Iowa straw poll in Ames. There is a debate Thursday night with Republican candidates in Iowa. The Iowa State Fair starts this coming week as well, always a huge week for presidential candidates to converge on the state every for years, this, of course, being the year. And those candidates - I mean, this is going to be like cat nip to a Republican presidential candidate. So much of their message is that President Obama's economic policies have failed, that they've been misguided, that they've had - they haven't had the kind of positive impact, that unemployment is too high. And certainly Republicans, you know, have talked a great deal about government spending, size of government, and the debt. So watch this to become perhaps the storyline on the presidential campaign in the coming weeks.
BLOCK: Marilyn, are there - what steps are there that the Treasury Department, for example, or the White House, could take given this downgrading of the U.S. debt rating - credit rating from Standard and Poor's? Is there anything they can do?
GEEWAX: So I think that the problem for President Obama is, in coming weeks and months, to find a way to make things move forward, to show the world that we have a plan in place for reducing the debt over time.
BLOCK: Tamara Keith, what do you think?
KEITH: Well, and I spoke with S&P and they said they had no comment on that. So, I hope that in the coming hours we'll actually get S&P's side of the story here. But apparently the administration says that S&P's math was way off. S&P obviously was told that the administration thought their math was way off and they released this anyway. So, S&P is clearly standing by their assessment of the state of the U.S. and its credit worthiness.
BLOCK: And, Marilyn Geewax, very briefly what will you be looking for Monday morning when the markets open?
GEEWAX: You know, the markets have been terrible for a couple of weeks now. So, maybe you could say: Look, this is - the worst of it is behind us now. At least now we know where we stand. And that would be the best outcome.
BLOCK: Thanks to the three of you. NPR's Marilyn Geewax, Tamara Keith and Don Gonyea. Again, with the news that this evening Standard and Poor's did move to downgrade the U.S. credit rating from AAA to AA+ - another sign that the U.S. fiscal troubles are deepening.
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