US fights back in ratings war saying agency got figures wrong
THE US government last night mounted a strong defence of its financial credibility.
The US Treasury Department accused rating agency Standard & Poor's (S&P) of getting the numbers wrong when it downgraded the US government debt rating from AAA to AA+ for the first time.
The downgrade has sparked fears that already weak investor sentiment could tip the global economy back into recession.
The Treasury Department last night moved to calm sentiment, in part by publicly rubbishing the rationale for the ratings downgrade.
The most senior finance official in the US, Treasury Secretary Timothy Geithner, said he now intended to stay on in his job, reversing a previous decision to step down after talks on raising the US debt ceiling were concluded.
Mr Geithner had warned US lawmakers that failing to raise the debt limit could have "catastrophic" consequences for the US economy and said "political theatre" in Congress was delaying action.
Last night a spokeswoman for the Treasury Department confirmed that Mr Geithner now planned to stay on in the job -- maintaining continuity as the financial crisis deepened.
The US position was also boosted yesterday by countries across the world saying they would continue to treat US government bonds, and the dollar, as ultra-safe investments.
French, British, Russian and Brazilian officials expressed confidence in the US as a borrower. Brazil said it had no plans to sell US government bonds or change its foreign currency reserves holdings as a result of the S&P downgrade.
The core of the US fightback is a claim from the Treasury Department that S&P made a US$2 trillion (€1.39trn) error in the sums that originally led it to cut the US debt rating, and did not readjust the rating even after it corrected the figures.
In its statement the Treasury said S&P had acknowledged an "error" in its calculations but did not alter the decision to downgrade the US rating.
The officials said S&P stuck with the decision to downgrade the nation's debt but changed the reason given for the decision. The original reason was high borrowings but that was changed to political instability after the correction, US officials said in a statement published yesterday.
Analysts at S&P last night stood by the decision to cut the rating.
They said blame for the cut should go to a political system that failed to adequately address deficit reduction in the compromise law that President Barack Obama signed on August 2.
S&P managing director John Chambers even said more cuts could be on the way. Mr Chambers said there was a one-in-three chance of a second US rating cut over the next two years. (Additional reporting Bloomberg)