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S&P Places U.S. on Negative CreditWatch, Could Lower Rating as Early as This Month

The rating agency wants to raise the debt ceiling.

Perhaps the current economic and political climate lends one to believe that, where our once stellar AAA credit rating is concerned, anything is possible. And sadly, that seems to in fact be the case.

Standard & Poor's has placed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the U.S. on negative CreditWatch.

According to the rating agency, CreditWatch is used to mark the "substantial likelihood of S&P taking a ratings-action within the next 90 days, or in response to events presenting significant uncertainty to the creditworthiness of an issuer."

S&P released a statement saying Thursday's CreditWatch placement signals a "one-in-two" likelihood that, due to the "political debate on the debt ceiling," it will lower the long-term rating on the U.S. within the next 90 days. However, it could happen even sooner than that. According to S&P, if the debt ceiling debate continues, the agency has stated it could lower the long-term rating on the U.S. as early as this month and "leave both the long-term and short-term ratings on CreditWatch with negative implications pending developments."

The rating agency has also placed its short-term rating on the U.S. on CreditWatch negative, stating it is a reflection of its view that the "current situation" poses "such significant uncertainty to the U.S.' creditworthiness."

One of the reasons cited for adding U.S. to CreditWatch is due to a perceived risk of the U.S. defaulting on government debt by not raising the debt ceiling.

S&P, in a released statement published by Reuters, goes on to clarify its position on U.S. credit ratings:

-- Since we revised the outlook on our 'AAA' long-term rating to negative from stable on April 18, 2011, the political debate about the U.S.' fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled. Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues. Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.

-- As a consequence, we now believe that we could lower our ratings on the U.S. within three months.

-- We may lower the long-term rating on the U.S. by one or more notches into the 'AA' category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.

-- We still believe that the risk of a payment default on U.S. government debt obligations as a result of not raising the debt ceiling is small, though increasing. However, any default on scheduled debt service payments on the U.S.' market debt, however brief, could lead us to revise the long-term and short-term ratings on the U.S. to 'SD.' Under our rating definitions, 'SD,' or selective default, refers to a situation where an issuer, the federal government in this case, has defaulted on some of its debt obligations, while remaining current on its other debt obligations. -- We may also lower the long-term rating and affirm the short-term rating if we conclude that future adjustments to the debt ceiling are likely to be the subject of political maneuvering to the extent that questions persist about Congress' and the Administration's willingness and ability to timely honor the U.S.' scheduled debt obligations.

S&P reportedly believes continued delays in raising the debt ceiling could lead the agency to conclude that a U.S. default is "more possible" than "previously thought."

However, the agency says that if congress and the administration "agree to raise the debt ceiling" it will try to review the details of the agreement within the next 90 days to "determine" whether it is "sufficient to stabilize" the U.S.' medium-term debt dynamics.

But according to a UPI report, both Republicans and Democrats will be taking the day off tomorrow:

Debt limit talks ended in Washington Thursday with no plans for negotiations Friday when the White House said the president will hold a news conference.

Citing a Democrat familiar with the talks, The Hill reported negotiators will likely meet during the weekend. A short time after Thursday's talks ended without an agreement, the White House said President Barack Obama will hold a news conference at 11 a.m. EDT Friday.

The news conference, scheduled for Friday at 11 a.m., is, according to White House officials, to discuss the “the status of efforts to find a balanced approach to deficit reduction.”

The National Journal reports that earlier Thursday Obama encouraged House and Senate leaders to work “over the next 24 to 36 hours” on finding a path forward regarding the debt ceiling.

The Obama administration will reportedly be "on call" over the weekend.

So is the fate of our S&P credit rating worth raising the debt ceiling? Or could our credit rating suffer an even worse fate if we raise the ceiling and borrow more than we can afford to pay back? What say you?

One last thing…
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