Obama administration fights back against S&P downgrade

THE OBAMA administration has fought back against Standard & Poor’s decision to lower the US credit rating outlook, arguing there was no danger of a downgrade and that a deficit reduction deal in Congress was within reach.

“I believe that Democrats and Republicans can come together to get this done,” US President Barack Obama said in a speech at a community college in Northern Virginia yesterday.

“It won’t be easy. There are going to be some fierce disagreements . . . But I’m optimistic.”

As the president addressed a domestic audience to sell his deficit plan, Tim Geithner, the US treasury secretary, made three appearances on financial television programmes to talk up the creditworthiness of the US.

Mr Geithner said there was “no risk” that the US triple A credit rating would be downgraded, in contrast to S&P’s assessment in a note on Monday that implied a one-in-three chance of a downgrade as it switched the outlook for the country’s debt from “stable” to “negative”.

“I think if you listen carefully the prospects of that are better today than they’ve been in a long period of time because people are saying that this is important to do for the economy and we have to start now.”

Mr Geithner’s message was buoyed by Tokyo’s reaction to the S&P move, with a senior official in Japan – the second largest foreign holder of US sovereign debt – saying treasuries remained “attractive”.

The Chinese government, the top foreign holder of US debt, said: “We hope the US government will take responsible policies and measures to safeguard investors’ interests.”

Speaking to the Financial Timesyesterday, Erskine Bowles, a former White House chief-of-staff for Bill Clinton and co-chair of last year's bipartisan fiscal commission, said S&P had been "absolutely right".

“If anything they understate the extent of the problem,” Mr Bowles said. “We are a lot further along than we were a year ago . . . but what we need now is action.”

Mr Geithner suggested that a deal on both fiscal goals and a trigger to enforce them was within reach, with specific details on cuts and policy changes to follow.

A new round of talks in Congress would begin next month, with the aim of reaching agreement by the end of June.

“I think what’s realistic is to lock in some concrete targets for deficit reduction and savings with a clear time-frame for bringing those into place with a credible enforcement mechanism,” Mr Geithner said. “Where we can agree on specifics, we should do that too. But we don’t have to agree on everything to start that process.” – (Copyright The Financial Times Limited 2011)