For months officials from the ratings agency Standard & Poor's have sought information from the Obama administration. Two weeks ago, Treasury administration officials – the ones in charge of selling US debt — were told that the ratings agency may well downgrade its long term outlook on the United States debt. Sources tell ABC News that Obama administration officials asked S&P to hold off until President Obama was able to offer a serious proposal to reduce the debt.
John Chambers, a managing director at Standard & Poor's, tells ABC News that the ratings agency had looked to see how serious the US government was about its debt by primarily focusing on President Obama’s Fiscal Commission report, which was published in December 2010, and President Obama’s FY2012 budget.
“The Fiscal Commission report was robust,” Chambers said, “but it was not warmly embraced by the executive or legislative branches of the government.”
President Obama put forward his FY2012 budget in February, proposing $1 trillion in deficit reduction over the next decade, which Chambers said the S&P committee found “disappointing.”
Three weeks ago, Rep. Paul Ryan, R-Wisc., pledged more than four times that amount — $4.4 trillion in deficit reduction over 10 years.
S&P officials thought these two points of view seemed unbridgeable and prepared to change the long term rating of US debt from “stable” to “negative.”
Obama administration officials asked S&P to hold off on issuing its report until after the President Obama and Congress had completed negotiating over the rest of the FY2011 budget, after which the president was planning to make a more serious deficit reduction proposal — $4 trillion over 12 years — than had been in his original proposal. Administration officials hoped that would convince the S&P officials that a compromise with Republicans was possible.
But while they waited for this presentation from the president, S&P officials saw President Obama and Congress locked in an intense budget negotiation over a relatively paltry $38.5 billion in spending cuts – one that threatened to shut down the government and only averted at the 11th hour.
This “dismayed” S&P officials, sources close to the process said.
S&P officials waited until President Obama gave his speech, which Republicans criticized as overly partisan and harsh in tone.
“The good news is part of the Republican leadership and the administration have put forward plans with similar fiscal targets,” Chambers said. “However when you look at the content of the proposals and the initial starting positions of this debate they’re pretty far apart.”
Chambers says the S&P committee also “fears delays or the dilution of the proposals.”
On Monday, the agency issued its report. The long-term rating would now be negative.
"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," S&P said in a statement.
S&P, notably, does not take a position on how the deficit problem be solved – on that the agency is agnostic, having praised Germany and the UK for their governments’ approaches, which include tax increases.
Treasury Secretary Tim Geithner took to the airwaves Tuesday to discuss how compromise with Republicans was possible, even if S&P officials were skeptical.
"What I would say to people around the world and to Americans, to businessmen, to investors around the world,” Geithner told CNBC, (is) “that the president recognizes and the leadership in the Congress recognize that we have to start to bring these deficits down. Now, we can do that. That's within our capacity to do."
Presidential hopeful and former Massachusetts Republican Gov. Mitt Romney, who is hoping to sell himself to the American people in 2012 as a can-do businessman who knows how to make the economy work, today told a radio interviewed that S&P “just downgraded their view for the future of America” and called for President Obama to “sit down and personally meet with S&P” as he said he did as governor of Massachusetts.
“How they rate our debt and how they rate our future as a nation will affect our interest costs that we end up paying,” Romney told KCBQ’s Mark Larson show, “and will affect homeowners and borrowers all over the country.”