How Long Will the Credit Downgrade Last?
Standard & Poor's (S&P) downgraded the United States' credit rating from AAA to AA+ on Friday. The most important question American’s are now asking is how long will it take to recover the nation's AAA rating?
If history is a guide, it may take a while. Of the five nations that S&P has downgraded and returned to AAA rating, the time it took to recover their former status ranged from nine to 18 years, according to John Chambers, managing director of S&P, in an interview with ABC's “This Week” on Sunday.
In the meantime, there is a chance that S&P could downgrade the United States' credit rating even further.
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When asked “could you downgrade again?” Chambers explained that the United States is on a “negative outlook” which puts it on a six to 24 month watch. “If the fiscal position of the United States deteriorates further, or if the political gridlock becomes more entrenched, then that could lead to a downgrade [from AA+],” Chambers said.
Chambers also said the chances of a further downgrade are “at least a one in three chance.”
In order for the United States to recover its AAA credit rating, Chambers said, “it would take a stabilization of the debt as a share of the economy and eventual decline, and it would take more effort to reach a consensus in Washington than what we're observing now.”
Chambers also suggested that the United States could recover its AAA credit rating if Congress passed the proposals of the Simpson-Bowles commission, a bipartisan commission formed last year by President Obama to make deficit reduction recommendations. The commission's recommendations included a broad range of proposals that included tax reform, defense cuts and changes to Social Security.
“We had a bipartisan commission, the Bowles-Simpson commission, that also came up with a majority [of votes on the commission] ... that had plenty of sensible recommendations and it was a pity that those weren't really followed through on,” Chambers said.
Politicians from both sides of the aisle have been harshly critical of S&P's decision. In a press conference on Monday, President Obama said, “No matter what some agency may say, we've always been and always will be a AAA country.” He also quoted professional investor Warren Buffett, who said, “If there were a quadruple rating, I'd give the United States that.”
