S&P Cuts U.S. Ratings Outlook to Negative

S&P believes that if the US does not get its spending and deficits in order, it may be forced to downgrade its credit rating within 2 to 3 years. They appear to be placing much of their hope, not on our current politicians, but on those that will be elected in 2012. Judging from the smoke and mirrors coming from Obama and the Democrats this last week on the new budget proposals, it appears that S&P is right in not expecting too much in the line of fiscal responsibility until the people get involved in the next election.

Excerpt: Standard & Poor's Ratings Services Inc. cut its outlook on the U.S. to negative, increasing the likelihood of a potential downgrade from its triple-A rating, as the path from large budget deficits and rising government debt remains unclear.

S&P analysts hosted a call explaining their decision to keep the U.S. at a AAA rating, but move the outlook to "negative." MarketBeat live-blogged the call. Here is the recap.

"More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," S&P credit analyst Nikola G. Swann said. He said the rating agency puts the chance of a U.S. downgrade within two years at least one-in-three.

The move comes amid continued hand-wringing over the balance sheet of the world's largest economy and disagreement among politicians on how to address fiscal woes as economic growth remains tepid.

S&P said Monday it sees material risk that policymakers might not agree on how to address budgetary challenges by 2013, which would render the U.S. fiscal profile weaker than that of other triple-A-rated countries.

S&P said Monday the U.S.'s rating is supported by its flexible and highly diversified economy and a consistent global preference for the U.S. dollar, which gives it "unique external liquidity."

Read full WSJ article here.