Standard & Poor's Defends Lowering U.S. Credit Rating

S&P says United States is "slightly less credit worthy."

August 6, 2011, 9:18 AM

WASHINGTON, Aug. 6, 2011— -- Standard & Poor's was making no apologies today for downgrading the United States, telling investors that the gold standard of global finance is no longer the safest place to put your money.

Standard & Poor's downgraded the U.S. rating from AAA to AA+ on Friday.

"Our job is to hold the mirror up to nature, and what we are telling investors is that the United States government is slightly less credit worthy," said John Chambers, head of Standard and Poor's sovereign ratings committee.

In its statement Friday, S&P said: "The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."

For more on Standard & Poor's downgrade on U.S. long term debt, click here.

The rating agency is saying in essence that Washington is broken and hasn't done enough to deal with the country's economic situation, pointing to "the gulf" between the political parties and how they used the debt ceiling as a "bargaining chip," leaving the United States "less stable, less effective."

"This is not really a serious way to run the country," Chambers said.

The Obama administration fought back against the downgrade, pointing out that the rating agency made a $2 trillion mistake in its math, declaring, "A judgment flawed by a $2 trillion error speaks for itself."

When the Asian markets open Monday -- late Sunday in Washington -- Treasury Department officials will be watching to see the effect on stocks and bonds, and by extension on the retirement accounts of millions of Americans.

"Even if it's not great on Monday and the market trades down, I dont think we are going to see significant trading down in terms of U.S. treasuries," ABC News financial analyst Melody Hobson said. "There is nowhere for the rest of the world to go. America still remains the best place to put your money."

The other two ratings agencies still consider the United States AAA, but for Standard & Poor's, U.S. credit is rated lower than France, Canada, Norway and the Isle of Man.

Click here to see the current sovereign rating list from Standard & Poor's.

"They absolutely have a point, we are definitely in a less good place than we have been in previous years, previous decades," fomer presidential economic adviser Donald Marron said.

This is the first time in history America's credit rating has been downgraded, and it carries some real consequences on mortgage and credit card rates and jobs.

The move by S&P follows decisions by two other major ratings agencies, Moody's Investor Service and Fitch Ratings, to maintain the United States' AAA rating, though Moody's assigned a negative outlook.

Analysts have told ABC News that a downgrade could mean a 6 percent drop in the stockmarket.

But what would the downgrade mean to you?

While the downgrade comes as a shock to some, causing many to speculate the influence the change will have on global markets, financial analyst and President of Envision Capital Marilyn Cohen said a AA+ rating isn't so bad.

"People have said this is going to be a disaster, it's going to be Armageddon. The truth of the matter is, if investors panic where they are they going to go? It's not a disaster," she said. "It won't be Armageddon because we still have the ability to make our interest payments on US treasuries and it is not that large of a percentage of our federal debt."

ABC News' Jake Tapper, Steven Portnoy, Susanna Kim and Michael S. James contributed to this report.