US Treasury Garners Negative Assessment

Steven Bobson, Europe & Americas Editor
April 19, 2011 /

The US Treasury debt garnered a negative assessment from Standard & Poor’s (S&P) when the US government decided to increase its budget cut for the next twelve years by $4 trillion yesterday, April 18, 2011.

S&P believes that in order to meet the target, the debt-limit increase proposed by the Obama administration should be accompanied by fiscal reforms that must take action within the next three months, otherwise, the US government could default on its debt early in July.

The report put a pressure on President Barrack Obama and the House Republicans to start taking actions to reduce the national debt.

Former White House and US Treasury official Tony Fratto thinks that S&P’s outlook is a motivation for the officials in Washington to confront the country’s fiscal challenges. The same goes for House Majority Leader Eric Cantor who called the S&P warning a wake-up call for those who are blindly asking the Congress to increase the debt limit.

However, Obama’s chief economic adviser, Austan Goolsbee, thinks otherwise and said that S&P’s negative outlook is only a political judgment that does not deserve too much weight. For him, their judgment didn’t consider a political agreement to reduce long-term deficits in the next two years.

S&P’s negative evaluation is the first time the US credit status was questioned since 1995 and 1996.

Minutes after the report, the yield on the benchmark 10-year Treasury note jumped from 3.37 percent to 3.45 percent.

It left most investors with no alternative since the US has the strongest, deepest and most liquid markets in the world.

 

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