Standard & Poor's Downgrades US Credit Rating From AAA to AA+


Other Credit Agencies Still Rate U.S. Debt AAA

S&P was the last of the major ratings agencies to comment about U.S. credit rating after the Senate passed an agreement Tuesday to raise the debt ceiling and avoid a default on U.S. debt, following passage in the House on Monday evening.

After the bill passed in the Senate, Moody's affirmed its AAA rating on U.S. sovereign debt but lowered its outlook to "negative."

"The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2-1.5 trillion by year end have virtually eliminated the risk of such a default, prompting the confirmation of the rating at AAA," Moody's said in its report on Tuesday.

Moody's assigned a negative outlook, explaining it could downgrade the U.S. on four conditions. Those factors included the following: if fiscal discipline weakens in the coming year, if further "fiscal consolidation" does not take place in 2013, if the economic outlook "deteriorates significantly," or if there is an appreciable rise in the government's spending "over and above what is currently expected."

Earlier on Tuesday, Fitch also affirmed its AAA rating for U.S. debt over the short-term, but warned of more tough choices coming soon.

"While the agreement is clearly a step in the right direction, the United States, as in much of Europe, must also confront tough choices on tax and spending against a weak economic back drop if the budget deficit and government debt is to be cut to safer levels over the medium term," Fitch said in a statement.

'The Most Significant Downgrade in the History of Rating Agencies?'

But Standard & Poor's disagreed, leading to a credit rating reduction that analysts dreaded.

"If they downgrade the U.S. Treasury, that will be the most significant downgrade in the history of rating agencies," Jim Kessler of Third Way, a non-partisan economic think tank in Washington, D.C., told ABC News last week.

Analysts predicted a downgrade might mean:

a 6 percent drop in the stock market, meaning the average 401(k) of $140,000 would lose $9,000.

mortgage rates rising at least a half point. That's a $19,000 hike on the average $172,000 home loan.

the overall economy getting hit with 1 percent drop in GNP, translating into 640,000 lost jobs.

And that's just the immediate damage.

"I would compare it to a marriage where one spouse cheats on the other," Kessler said last week. "The marriage may survive, but it will never be the same again. And if there is a downgrade on U.S. treasuries, our economy will survive but it will never be the same again, as well."

ABC News' Jim Avila contributed to this report.

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