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VOL. 128 | NO. 113 | Tuesday, June 11, 2013

S&P Boosts Outlook for US Government’s Long-Term Debt

PAUL WISEMAN | AP Economics Writer

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WASHINGTON (AP) – Standard & Poor's Ratings Services upgraded its outlook Monday for the U.S. government's long-term debt. S&P cited the government's strengthened finances, a recovering U.S. economy and some easing of Washington's political gridlock.

The credit rating service raised its outlook to "Stable" from "Negative," which means it's less likely to downgrade U.S. debt in the near future.

S&P also reaffirmed the government's "AA+" long-term and "A-1+" short-term unsolicited sovereign credit ratings. The long-term rating remains a notch below S&P's top grade.

S&P had downgraded the U.S. government's long-term credit rating in 2011 after a standoff in Congress over whether to raise America's borrowing limit.

Stan Collender, a budget expert with the Qorvis Communications consultancy, downplayed the significance of Monday's move. S&P's downgrade two years ago had no lasting effect on U.S. interest rates, the stock market or the value of the dollar. Long-term U.S. interest rates remain historically low – evidence that global investors remain confident in the government's creditworthiness.

S&P said its decision to boost the outlook for U.S. debt reflects "the strengths of the U.S. economy," including the Federal Reserve's willingness to support growth by keeping short-term rates near zero and buying bonds to keep long-term borrowing rates down.

The rating agency, which in 2011 lambasted Washington politicians for failing to reach a compromise to cut the federal deficit, noted approvingly Monday that Congress had agreed to raise some taxes this year, notably the Social Security tax that most workers pay.

Those tax increases, along with automatic spending cuts that kicked in March 1 and higher payments to the Treasury from the mortgage firms Freddie Mac and Fannie Mae, have shrunk the government's budget deficit. The deficit is the gap between the revenue government collects and the money it spends on everything from Medicare to defense.

The Congressional Budget Office estimated last month that the deficit, which topped $1 trillion in each of the past four years, will drop this year to $643 billion.

S&P said it expects the government's debts to stabilize for several years at about 84 percent of gross domestic product, the broadest measure of the economy. While the deficit remains at that manageable level, policymakers will have time to prepare for the cost of providing Social Security and Medicare to retiring baby boomers.

S&P said it doesn't foresee a crisis from the political wrangling over raising the government's debt limit. It expects Congress to increase the debt limit around the time the current budget year ends Sept. 30. Raising the debt limit would let the government continue to borrow to pay its bills.

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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