• We have affirmed our 'AAA/A-1+' sovereign credit rating on the United States of America.
  • The economy of the U.S. is flexible and highly diversified, the country's effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.
  • 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 revised our outlook on the long-term rating to negative from stable.
  • We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.
(Watch the related CreditMatters TV video titled, "The U.S.: What Prompted 
Standard & Poor’s To Revise Its Outlook To Negative," dated April 18, 2011.)

Rating Action

On April 18, 2011, Standard & Poor's Ratings Services affirmed its 'AAA' 
long-term and 'A-1+' short-term sovereign credit ratings on the United States 
of America and revised its outlook on the long-term rating to negative from 


Our ratings on the U.S. rest on its high-income, highly diversified, and 
flexible economy, backed by a strong track record of prudent and credible 
monetary policy. The ratings also reflect our view of the unique advantages 
stemming from the dollar's preeminent place among world currencies. Although 
we believe these strengths currently outweigh what we consider to be the 
U.S.'s meaningful economic and fiscal risks and large external debtor 
position, we now believe that they might not fully offset the credit risks 
over the next two years at the 'AAA' level.
     The U.S. is among the most flexible high-income nations, with both 
adaptable labor markets and a long track record of openness to capital flows. 
In addition, its public sector uses a smaller share of national income than 
those of most 'AAA' rated countries--including its closest peers, the U.K., 
France, Germany, and Canada (all AAA/Stable/A-1+)--which implies greater 
revenue flexibility.
     Furthermore, the U.S. dollar is the world's most used currency, which 
provides the U.S. with unique external flexibility; the vast majority of U.S. 
trade flows and external liabilities are denominated in its own dollars. 
Recent depreciation of the currency has not materially affected this position, 
and we do not expect this to change in the medium term (see "Après Le Déluge, 
The U.S. Dollar Remains The Key International Currency," March 10, 2010, 
     Despite these exceptional strengths, we note the U.S.'s fiscal profile 
has deteriorated steadily during the past decade and, in our view, has 
worsened further as a result of the recent financial crisis and ensuing 
recession. Moreover, more than two years after the beginning of the recent 
crisis, U.S. policymakers have still not agreed on a strategy to reverse 
recent fiscal deterioration or address longer-term fiscal pressures.
     In 2003-2008, the U.S.'s general (total) government deficit fluctuated 
between 2% and 5% of GDP. Already noticeably larger than that of most 'AAA' 
rated sovereigns, it ballooned to more than 11% in 2009 and has yet to 
     On April 13, President Barack Obama laid out his Administration's 
medium-term fiscal consolidation plan, aimed at reducing the cumulative 
unified federal deficit by US$4 trillion in 12 years or less. A key component 
of the Administration's strategy is to work with Congressional leaders over 
the next two months to develop a commonly agreed upon program to reach this 
target. The President's proposals envision reducing the deficit via both 
spending cuts and revenue increases, and the adoption of a "debt failsafe" 
legislative mechanism that would trigger an across-the-board spending 
reduction if, by 2014, budget projections show that federal debt to GDP has 
not yet stabilized and is not expected to decline in the second half of the 
current decade.
     The Obama Administration's proposed spending cuts include reducing 
non-security discretionary spending to levels similar to those proposed by the 
Fiscal Commission in December 2010, holding growth in base security (excluding 
war expenditure) spending below inflation, and further cost-control measures 
related to health care programs. Revenue would be increased via both tax 
reform and allowing the 2001 and 2003 income and estate tax cuts to expire in 
2012 as currently scheduled--though only for high-income households. We note 
that the President advocated the latter proposal last year before agreeing 
with Republicans to extend the cuts beyond their previously scheduled 2011 
expiration. The compromise agreed upon in December likely provides short-term 
support for the economic recovery, but we believe it also weakens the U.S.'s 
fiscal outlook and, in our view, reduces the likelihood that Congress will 
allow these tax cuts to expire in the near future. We also note that 
previously enacted legislative mechanisms meant to enforce budgetary 
discipline on future Congresses have not always succeeded.
     Key members in the U.S. House of Representatives have also advocated 
fiscal tightening of a similar magnitude, US$4.4 trillion, during the coming 
10 years, but via different methods. House Budget Committee Chairman Paul 
Ryan's plan seeks to balance the federal budget by 2040, in part by cutting 
non-defense spending. The plan also includes significantly reducing the scope 
of Medicare and Medicaid, while bringing top individual and corporate tax 
rates lower than those under the 2001 and 2003 tax cuts.
     We view President Obama's and Congressman Ryan's proposals as the 
starting point of a process aimed at broader engagement, which could result in 
substantial and lasting U.S. government fiscal consolidation. That said, we 
see the path to agreement as challenging because the gap between the parties 
remains wide. We believe there is a significant risk that Congressional 
negotiations could result in no agreement on a medium-term fiscal strategy 
until after the fall 2012 Congressional and Presidential elections. If so, the 
first budget proposal that could include related measures would be Budget 2014 
(for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond 
that time is possible.
     Standard & Poor's takes no position on the mix of spending and revenue 
measures the Congress and the Administration might conclude are appropriate. 
But for any plan to be credible, we believe that it would need to secure 
support from a cross-section of leaders in both political parties.
     If U.S. policymakers do agree on a fiscal consolidation strategy, we 
believe the experience of other countries highlights that implementation could 
take time. It could also generate significant political controversy, not just 
within Congress or between Congress and the Administration, but throughout the 
country. We therefore think that, assuming an agreement between Congress and 
the President, there is a reasonable chance that it would still take a number 
of years before the government reaches a fiscal position that stabilizes its 
debt burden. In addition, even if such measures are eventually put in place, 
the initiating policymakers or subsequently elected ones could decide to at 
least partially reverse fiscal consolidation.
     In our baseline macroeconomic scenario of near 3% annual real growth, we 
expect the general government deficit to decline gradually but remain slightly 
higher than 6% of GDP in 2013. As a result, net general government debt would 
reach 84% of GDP by 2013. In our macroeconomic forecast's optimistic scenario 
(assuming near 4% annual real growth), the fiscal deficit would fall to 4.6% 
of GDP by 2013, but the U.S.'s net general government debt would still rise to 
almost 80% of GDP by 2013. In our pessimistic scenario (a mild, one-year 
double-dip recession in 2012), the deficit would be 9.1%, while net debt would 
surpass 90% by 2013. Even in our optimistic scenario, we believe the U.S.'s 
fiscal profile would be less robust than those of other 'AAA' rated sovereigns 
by 2013. (For all of the assumptions underpinning our three forecast 
scenarios, see "U.S. Risks To The Forecast: Oil We Have to Fear Is…," March 
15, 2011, RatingsDirect.
     Additional fiscal risks we see for the U.S. include the potential for 
further extraordinary official assistance to large players in the U.S. 
financial or other sectors, along with outlays related to various federal 
credit programs. We estimate that it could cost the U.S. government as much as 
3.5% of GDP to appropriately capitalize and relaunch Fannie Mae and Freddie 
Mac, two financial institutions now under federal control, in addition to the 
1% of GDP already invested (see "U.S. Government Cost To Resolve And Relaunch 
Fannie Mae And Freddie Mac Could Approach $700 Billion," Nov. 4, 2010, 
RatingsDirect). The potential for losses on federal direct and guaranteed 
loans (such as student loans) is another material fiscal risk, in our view. 
Most importantly, we believe the risks from the U.S. financial sector are 
higher than we considered them to be before 2008, as our downward revisions of 
our Banking Industry Country Risk Assessment (BICRA) on the U.S. to Group 3 
from Group 2 in December 2009 and to Group 2 from Group 1 in December 2008 
reflect (see "Banking Industry Country Risk Assessments," March 8, 2011, and "
Banking Industry Country Risk Assessment: United States of America," Feb. 1, 
2010, both on RatingsDirect). In line with these views, we now estimate the 
maximum aggregate, up-front fiscal cost to the U.S. government of resolving 
potential financial sector asset impairment in a stress scenario at 34% of GDP 
compared with our estimate of 26% in 2007.
     Beyond the short- and medium-term fiscal challenges, we view the U.S.'s 
unfunded entitlement programs (such as Social Security, Medicare, and 
Medicaid) to be the main source of long-term fiscal pressure. These 
entitlements already account for almost half of federal spending (an estimated 
42% in fiscal-year 2011), and we project that percentage to continue 
increasing as long as these entitlement programs remain as they currently 
exist (see "Global Aging 2010: In The U.S., Going Gray Will Cost A Lot More 
Green," Oct. 25, 2010, RatingsDirect). In addition, the U.S.'s net external 
debt level (as we narrowly define it), approaching 300% of current account 
receipts in 2011, demonstrates a high reliance on foreign financing. The 
U.S.'s external indebtedness by this measure is one of the highest of all the 
sovereigns we rate.
     While thus far U.S. policymakers have been unable to agree on a fiscal 
consolidation strategy, the U.S.'s closest 'AAA' rated peers have already 
begun implementing theirs. The U.K., for example, suffered a recession almost 
twice as severe as that in the U.S. (U.K. GDP declined 4.9% in real terms in 
2009, while the U.S.'s dropped 2.6%). In addition, the U.K.'s net general 
government indebtedness has risen in tandem with that of the U.S. since 2007. 
In June 2010, the U.K. began to implement a fiscal consolidation plan that we 
believe credibly sets the country's general government deficit on a 
medium-term downward path, retreating below 5% of GDP by 2013.
     We also expect that by 2013, France's austerity program, which it is 
already implementing, will reduce that country's deficit, which never rose to 
the levels of the U.S. or U.K. during the recent recession, to slightly below 
the U.K. deficit. Germany, which suffered a recession of similar magnitude to 
that in the U.K. (but has enjoyed a much stronger recovery), enacted a 
constitutional limit on fiscal deficits in 2009 and we believe its general 
government deficit was already at 3% of GDP last year and will likely decrease 
further. Meanwhile, Canada, the only sovereign of the peer group to suffer no 
major financial institution failures requiring direct government assistance 
during the crisis, enjoys by far the lowest net general government debt of the 
five peers (we estimate it at 34% of GDP this year), largely because of an 
unbroken string of balanced-or-better general government budgetary outturns 
from 1997 through 2008. Canada's general government deficit never exceeded 4% 
of GDP during the recent recession, and we believe it will likely return to 
less than 0.5% of GDP by 2013.


The negative outlook on our rating on the U.S. sovereign signals that we 
believe there is at least a one-in-three likelihood that we could lower our 
long-term rating on the U.S. within two years. The outlook reflects our view 
of the increased risk that the political negotiations over when and how to 
address both the medium- and long-term fiscal challenges will persist until at 
least after national elections in 2012.
     Some compromise that achieves agreement on a comprehensive budgetary 
consolidation program--containing deficit reduction measures in amounts near 
those recently proposed, and combined with meaningful steps toward 
implementation by 2013--is our baseline assumption and could lead us to revise 
the outlook back to stable. Alternatively, the lack of such an agreement or a 
significant further fiscal deterioration for any reason could lead us to lower 
the rating.
     Standard & Poor's will hold a global teleconference call and Web cast 
today--April 18, 2011--at 11:30 a.m. New York time (4:30 p.m. London time). 
For dial-in and streaming audio details, please go to 

Related Criteria And Research

Ratings List

Ratings Affirmed; Outlook Action
                                        To                 From
United States of America (Unsolicited Ratings)
 Sovereign Credit Rating                AAA/Negative/A-1+  AAA/Stable/A-1+
Ratings Affirmed
United States of America (Unsolicited Ratings)
 Senior Unsecured                       AAA                
United States of America (Unsolicited Ratings)
 Transfer & Convertibility Assessment   AAA                

This unsolicited rating(s) was initiated by Standard & Poor's. It may be based 
solely on publicly available information and may or may not involve the 
participation of the issuer. Standard & Poor's has used information from 
sources believed to be reliable based on standards established in our Credit 
Ratings Information and Data Policy but does not guarantee the accuracy, 
adequacy, or completeness of any information used.
Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 

Primary Credit Analyst:Nikola G Swann, CFA, FRM, Toronto (1) 416-507-2582;
Secondary Contacts:John Chambers, CFA, New York (1) 212-438-7344;
David T Beers, London (44) 20-7176-7101;

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