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US lawmakers, media say rating downgrade 'a wake-up call'

Top US lawmakers late on Friday expressed concern about Standard & Poor's decision to cut the US credit rating, saying it was "a wake-up call" for a nation saddled with a debt exceeding $14 trillion.

business Updated: Aug 06, 2011 09:59 IST

Top US lawmakers late on Friday expressed concern about Standard & Poor's decision to cut the US credit rating, saying it was "a wake-up call" for a nation saddled with a debt exceeding $14 trillion.

Senate Democratic majority leader Harry Reid said "the action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners."

Reid said it was important to appoint to a bipartisan committee tasked with finding additional spending cuts with "members who will approach the committee's work with an open mind - instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding."

Standard & Poor's cut the US credit rating for the first time in history on Friday, saying the country's politicians are increasingly unable to come to grips with its massive fiscal deficit and debt load.

S&P cut the US rating from its top-flight triple-A one notch to AA+, and added a negative outlook, saying it could be further downgraded in two years if progress is not made in cutting the huge government budget gap.

It was the first time the US was downgraded since it received an AAA rating from Moody's in 1917; it has held the S&P rating since 1941.

House Democratic whip Steny Hoyer said the downgrade served "as yet another wake-up call that we must put politics aside as we work to put our nation's fiscal house back in order."

Republican House speaker John Boehner called the decision by S&P "the latest consequence of the out-of-control spending that has taken place in Washington for decades."

The speaker assured that congressional Republicans remained committed to ensuring the United States always met its financial obligations.

"Though we are outnumbered in Washington, we will continue to press Democrats to join us in taking meaningful steps to rein in our debt and deficits," Boehner said.

In the newspapers, columnists displayed the traditional political divide.

"On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation," wrote liberal economist Paul Krugman, a Nobel Prize winner, in the New York Times.

"And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency," he said, referring to protracted negotiations on the US debt ceiling in which conservative Republicans insisted on deep budget cuts.

But Krugman also questioned the agency's ability to assess sovereign ratings, saying: "it's hard to think of anyone less qualified to pass judgment on America than the rating agencies."

"The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?," Krugman asked.

The Wall Street Journal, a conservative newspaper, said "a cornerstone of the global financial system was shaken Friday."

The paper predicted that the downgrade will force traders and investors to reconsider what has been an elemental assumption of modern finance.

"It's possible the blow in the short run might be more psychological than practical," The Journal said.

"Rival ratings firms Moody's Investors Service and Fitch Ratings have retained their top-notch ratings for US debt in recent days. And so far, US Treasury bonds have remained a safe haven for investors worried about the health of the US economy and the state of Europe's debt crisis."

Columnist Ezra Klein wrote in The Washington Post that if Washington hadn't tied the debt ceiling to a deficit-reduction package, "perhaps S&P would be less bothered now.

"But the bitter disagreements of the last few months have carried a cost," Klein wrote.

"By showing how much trouble the two parties will have cutting a deal now, they've left observers like S&P wondering if we can cut one later, either."