• Standard & Poor's has placed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the United States of America on CreditWatch with negative implications.
  • Standard & Poor's uses CreditWatch to indicate a substantial likelihood of it taking a rating action within the next 90 days, or in response to events presenting significant uncertainty to the creditworthiness of an issuer. Today's CreditWatch placement signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days. We have also placed our short-term rating on the U.S. on CreditWatch negative, reflecting our view that the current situation presents such significant uncertainty to the U.S.' creditworthiness.
  • Since we revised the outlook on our 'AAA' long-term rating to negative from stable on April 18, 2011, the political debate about the U.S.' fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled. Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues. Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.
  • As a consequence, we now believe that we could lower our ratings on the U.S. within three months.
  • We may lower the long-term rating on the U.S. by one or more notches into the 'AA' category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.
  • We still believe that the risk of a payment default on U.S. government debt obligations as a result of not raising the debt ceiling is small, though increasing. However, any default on scheduled debt service payments on the U.S.' market debt, however brief, could lead us to revise the long-term and short-term ratings on the U.S. to 'SD.' Under our rating definitions, 'SD,' or selective default, refers to a situation where an issuer, the federal government in this case, has defaulted on some of its debt obligations, while remaining current on its other debt obligations.
  • We may also lower the long-term rating and affirm the short-term rating if we conclude that future adjustments to the debt ceiling are likely to be the subject of political maneuvering to the extent that questions persist about Congress' and the Administration's willingness and ability to timely honor the U.S.' scheduled debt obligations.

Rating Action

On July 14, 2011, Standard & Poor's Ratings Services placed its 'AAA' 
long-term and 'A-1+' short-term sovereign credit ratings on the United States 
of America on CreditWatch with negative implications.  


The CreditWatch action reflects our view of two separate but related issues. 
The first issue is the continuing failure to raise the U.S. government debt 
ceiling so as to ensure that the government will be able to continue to make 
scheduled payments on its debt obligations. The second pertains to our current 
view of the likelihood that Congress and the Administration will agree upon a 
credible, medium-term fiscal consolidation plan in the foreseeable future.

On May 16, 2011, the U.S. government reached its Congressionally mandated 
ceiling for federal debt of $14,294 billion. Since then, the government has 
undertaken exceptional measures to avoid breaching the debt ceiling. Secretary 
of Treasury Timothy Geithner wrote, "The unique role of Treasury securities in 
the global financial system means that the consequences of default would be 
particularly severe.... Even a short-term default could cause irrevocable 
damage to the American economy." The Treasury currently estimates that it will 
have exhausted these exceptional measures on or about Aug. 2, 2011, at which 
time it will either have to curtail certain current expenses or risk missing a 
scheduled payment of interest or principal on Treasury securities held by the 

Standard & Poor's still anticipates that lawmakers will raise the debt ceiling 
by the end of July to avoid those outcomes. However, if the government is 
forced to undergo a sudden, unplanned fiscal contraction--as a result of 
Treasury efforts to conserve cash and avoid default absent an agreement to 
raise the debt ceiling--we think that the effect on consumer sentiment, market 
confidence, and, thus, economic growth will likely be detrimental and long 
lasting. If the government misses a scheduled debt payment, we believe the 
effect would be even more significant and, under our criteria, would result in 
Standard & Poor's lowering the long-term and short-term ratings on the U.S. to 
'SD' until the payment default was cured.

Congress and the Administration are debating various fiscal consolidation 
proposals. At the high end, budget savings of $4 trillion phased in over 10 to 
12 years proposed by the Adminstration, (separately) by Congressional leaders, 
as well as by the Fiscal Commission in its December 2010 report, if 
accompanied by growth-enhancing reforms, could slow the deterioration of the 
U.S. net general government debt-to-GDP ratio, which is currently nearing 75%. 
Under our baseline macroeconomic scenario, net general government debt would 
reach 84% of GDP by 2013. (Our baseline scenario assumes near 3% annual real 
growth and a post-2012 phaseout of the December 2010 extension of the 2001 and 
2003 tax cuts.) Such a percentage indicates a relatively weak government debt 
trajectory compared with those of the U.S.' closest 'AAA' rated peers (France, 
Germany, the U.K., and Canada).

We expect the debt trajectory to continue increasing in the medium term if a 
medium-term fiscal consolidation plan of $4 trillion is not agreed upon. If 
Congress and the Administration reach an agreement of about $4 trillion, and 
if we conclude that such an agreement would be enacted and maintained 
throughout the decade, we could, other things unchanged, affirm the 'AAA' 
long-term rating and A-1+ short-term ratings on the U.S.  

Standard & Poor's takes no position on the mix of spending and revenue 
measures that Congress and the Administration might agree on. But for any 
agreement to be credible, we believe it would require support from leaders of 
both political parties.

Congress and the Administration might also settle for a smaller increase in 
the debt ceiling, or they might agree on a plan that, while avoiding a 
near-term default, might not, in our view, materially improve our base case 
expectation for the future path of the net general government debt-to-GDP 
ratio. U.S. political debate is currently more focused on the need for 
medium-term fiscal consolidation than it has been for a decade. Based on this, 
we believe that an inability to reach an agreement now could indicate that an 
agreement will not be reached for several more years. We view an inability to 
timely agree and credibly implement medium-term fiscal consolidation policy as 
inconsistent with a 'AAA' sovereign rating, given the expected government debt 
trajectory noted above.


Further delays in raising the debt ceiling could lead us to conclude that a 
default is more possible than we previously thought. If so, we could lower the 
long-term rating on the U.S. government this month and leave both the 
long-term and short-term ratings on CreditWatch with negative implications 
pending developments. If Congress and the Administration agree to raise the 
debt ceiling (with commensurate fiscal adjustments), we aim to review the 
details of such agreement within the next 90 days to determine whether, in our 
view, it is sufficient to stabilize the U.S.' medium-term debt dynamics. If we 
conclude that the agreement would likely achieve this end, all other things 
unchanged, we would expect to affirm both the long- and short-term ratings and 
assign a stable outlook.

If a debt ceiling agreement does not include a plan that seems likely to us to 
credibly stabilize the U.S.' medium-term debt dynamics but the result of the 
debt ceiling negotiations leads us to believe that such a plan could be 
negotiated within a few months, all other things unchanged, we expect to 
affirm both the long- and short-term ratings and assign a negative outlook, 
pending review of the eventual plan. If such an agreement is reached, but we 
do not believe that it likely will stabilize the U.S.' debt dynamics, we, 
again all other things unchanged, would expect to lower the long-term 'AAA' 
rating, affirm the 'A-1+' short-term rating, and assign a negative outlook on 
the long-term rating. 

Following today's CreditWatch listings for the long- and short-term credit 
ratings on the U.S. government, Standard & Poor's will issue separate media 
releases concerning affected ratings in the funds, government-related 
entities, financial institutions, insurance companies, public finance, and 
structured finance sectors.

Related Criteria And Research


Ratings List

CreditWatch/Outlook Action
                                        To                  From
United States of America (Unsolicited Ratings)
Federal Reserve System
Federal Reserve Bank of New York (Unsolicited Ratings)
 Sovereign Credit Rating                AAA/Watch Neg/A-1+  AAA/Negative/A-1+

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;

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.