Standard & Poor's gave the U.S. a vote of poor confidence in its ability to deal with large budget deficits and rising government debt, cutting the American credit outlook from stable to negative. S&P affirmed that the U.S. still has an AAA long-term credit rating, but S&P credit analyst Nikola G. Swann warned that the chances it could be lowered in the next two years are now at least one in three, if not higher. "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," Swann told The Wall Street Journal. The news caused U.S. currency to fall for a third day versus the yen. Stocks likewise sank the lowest they had in a month, and gold rose to a record high. But before anyone cues the locusts, Alan Ruskin, global head of Group of 10 foreign-exchange strategy at Deutsche Bank in New York, told Businessweek he thinks the warning might be just what the U.S. needs.
“It’s a kick in the pants for authorities to now get their act together in terms of a coherent long-term deficit/debt plan. It’s given a little bit of a lifeline to euro-dollar.”
Guess Ruskin wasn't worried about the part where the S&P also predicted budget differences between Democrats and Republicans may delay a proposal to address concerns until after the 2012 elections.
S&P Cuts U.S. Ratings Outlook to Negative [WSJ]
Stocks Sink on U.S. Credit Outlook [Bloomberg]
Dollar Drops Versus Yen to Lowest in April as S&P Lowers Outlook [Businessweek via Dealbreaker]