Standard & Poor's on Monday downgraded its credit outlook for the United States, citing a "material risk" that policymakers may not reach agreement on a plan trim its large budget deficit.
While the agency maintained the country's top AAA credit rating, it said that authorities have not made clear how they will tackle long-term fiscal pressures.
S&P said the move signals there's at least a one-in-three chance that it could cut its long-term rating on the United States within two years.
"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 revise dour outlook on the long-term rating to negative from stable," S&P said in a release.
U.S. government bond prices fell after S&P's announcement, while stock futures extended losses and the dollar pared gains against the euro.
"The headline has enough of a shock value. The initial reaction is that this is negative for dollar assets across the board." said Lou Brien, a market strategist with DRW Trading in Chicago.
Outstanding public U.S. debt has swelled to more than 60 percent of total output in the aftermath of the 2007-2009 financial crisis, and with a budget deficit projected at more than
0.69€trillion, is set to grow further.
A U.S. Treasury official said the S&P negative outlook underestimates the ability of U.S. lawmakers to tackle the country's fiscal challenges.
The first post of this blog dealt with the questionability of the US "AAA" rating 6 years ago.
US AAA Rating - How Much Longer???
The strategy for 2011 remains unchanged as chances of a simultaneous replacement of Federal Reserve Notes and Euros with some new funny IMF fiat currency are rising rapidly with every day.
The Prudent Investor's Forecast and Strategy 2011
There is no need for a new artificial global reserve currency. Today's new highs in gold proves the oldest universally accepted currency in the world is back on its way to regain that status again.