S&P Cuts U.S. Ratings Outlook to Negative

Damian Paletta
The Wall Street Journal

A stark warning from a credit-rating firm about the U.S. government’s fiscal problems stoked concern on Wall Street and in Washington on Monday, pushing global stock markets lower and intensifying political divisions about the best way to tackle the country’s growing deficits.

Both the Obama administration and House Republicans scrambled to gain leverage from a new report by Standard & Poor’s, which for the first time lowered its outlook on the U.S. government’s debt to “negative” from “stable.”

While S&P didn’t change its triple-A bond rating for the U.S. government, the move was enough to send the Dow Jones Industrial Average tumbling almost 250 points at one point Monday.

S&P questioned whether the White House and Republicans would be able to reach an agreement before the 2012 presidential elections on a plan to rein in deficits. This year’s shortfall is projected to be about $1.5 trillion, roughly 10% of the country’s gross domestic product.

The S&P analysis didn’t offer any new insight into the nation’s fiscal plight or partisan differences about how to solve it, but served as a reminder that investors may not always be as patient as they have been about U.S. deficits.

The U.S. debt now stands at $14.2 trillion and is expected to balloon in part because of rising costs for health care, retirement and other so-called entitlement programs, and the interest costs on existing debt. S&P said that even if a short-term deal is reached to contain deficits, any agreement could later be undone by politicians…

The article continues at The Wall Street Journal.

MarketBeat Recap
S&P analysts hosted a call explaining their decision to keep the U.S. at a AAA rating, but move the outlook to “negative.” MarketBeat live-blogged the call. Here is the recap.

Also at WSJ: U.S. Hurries to Sell GM Stake

The U.S. government plans to sell a significant share of its remaining stake in General Motors Co. this summer despite the disappointing performance of the auto maker’s stock, people familiar with the matter said.

A sale within the next several months would almost certainly mean U.S. taxpayers will take a loss on their $50 billion rescue of the Detroit auto maker in 2009.

To break even, the U.S. Treasury would need to sell its remaining stake—about 500 million shares—at $53 apiece. GM closed off 27 cents a share at $29.97 in 4 p.m. trading Monday on the New York Stock …

The complete article is available to subscribers.

Update: 115 House Dems Insist S&P Credit Warning Means GOP Should Agree to Raise Debt Ceiling With No Strings Attached at Weasel Zippers. Also at the site, Fun Fact of the Day: 100% Tax on Those Earning $500,000 or More Leaves U.S. With $839 Billion Deficit…

When he presented his plan for dealing with the national debt last week, President Barack Obama suggested a number of ways he would like to increase taxes on people he referred to as “millionaires and billionaires.”

However, recently released statistics from the Internal Revenue Service indicate that taxing away 100 percent of the income of every American who earned $500,000 or more in 2009 would still have left the United States with a massive annual deficit.

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