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S&PCORRECT: Standard & Poor's Clarifies Assumption Used On Discretionary Spending Growth

Publication date: 19-Aug-2011 16:39:36 EST

(Editor's Note: The original version of this article, which was published on 
Aug. 6, 2011, included a number to help readers quantify the difference 
between the two analytical approaches in dollar terms. The projected debt 
numbers in that statement were correct, but the difference between the two 
approaches is smaller than the incorrect dollar figure previously provided as 
a result of an editing error. In the version below, we have revised that 
dollar figure and have provided the actual debt numbers in nonrounded terms.)

NEW YORK (Standard & Poor's) Aug. 19, 2011--In response to questions, Standard 
& Poor's Ratings Services said that the ratings decision to lower the 
long-term rating on the United States to 'AA+' from 'AAA' was not affected by 
the change of assumptions regarding the pace of discretionary spending growth. 
In the near-term horizon to 2015, the U.S. net general government debt is 
projected to be $14.5 trillion (79% of 2015 GDP) versus $14.7 trillion (81% of 
2015 GDP) with the initial assumption.

We used the Alternative Fiscal Scenario of the nonpartisan Congressional 
Budget Office (CBO), which includes an assumption that government 
discretionary appropriations will grow at the same rate as nominal GDP. In 
further discussions between Standard & Poor's and the U.S. Treasury, we 
determined that the CBO's Baseline Scenario, which assumes discretionary 
appropriations grow at a lower rate, would be more consistent with CBO 
assessment of the savings set out by the Budget Control Act of 2011.

Our ratings are determined primarily using a three- to five-year time horizon.

In the near-term horizon, by 2015, the U.S. net general government debt with 
the new assumptions was projected to be $14,455 billion (79% of 2015 GDP) 
versus $14,727 billion (81% of 2015 GDP) with the initial assumption--a 
difference of $272 billion.

In taking a longer-term horizon of 10 years, the U.S. net general government 
debt level with the current assumptions would be $20.1 trillion (85% of 2021 
GDP). With the original assumptions, the debt level was projected to be $22.1 
trillion (93% of 2021 GDP).

The primary focus remained on the current level of debt, the trajectory of 
debt as a share of the economy, and the lack of apparent willingness of 
elected officials as a group to deal with the U.S. medium-term fiscal outlook. 
None of these key factors was meaningfully affected by the assumption 
revisions to the assumed growth of discretionary outlays and thus had no 
impact on the rating decision.

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