The United States is unlikely to get its AAA rating back any time soon, and if Washington fails to follow through on spending cuts, the nation faces an even further downgrade, two Standard & Poor's executives warned Monday.
Following their reduction in ratings for Fannie Mae and Freddie Mac, S&P stood behind Friday's decision to downgrade the U.S. to AA+ in a conference call Monday with investors and analysts around the world, even as it sought to downplay the significance of the one-notch demotion.
"It's like going from indigo to navy blue," said John Chambers, head of S&P's sovereign rating committee.
Still, once a nation's credit is downgraded from AAA, it can take years to recover it -- if at all, S&P said.
"We don't anticipate a scenario at the moment in which the U.S. would quickly return to AAA," said David Beers, the firm's global head of sovereign ratings. "If [there were] broader consensus among parties about how to make fiscal policy choices over the medium-term horizon and, in turn, that translated into a more substantial and more robust fiscal stimulation package, those two things could together in time lead to the rating returning to AAA.
"But given the nature of the debate currently in the country, with the polarization of views across the country right now, we don't see anything immediately on the horizon that would make this the most likely scenario," Beers said.
Another Downgrade for U.S.?
Rather, S&P has placed the U.S. on a negative watch for possible downgrade again, to AA, in the next two years if spending cuts promised in the debt-ceiling deal don't occur. The watch means there is a 33 percent chance of a downgrade, the Los Angeles Times reported.
Australia, Canada, Denmark, Finland and Sweden all regained their AAA ratings in recent years after losing them, but the shortest time any of them managed it was nine years, he said. And they did it through "a sustained period" of deficit reduction.
"It wasn't only a matter of fiscal reform, it was also a matter of economic reform," he said.
Because of similar practices to reduce debt, France and the United Kingdom managed to keep their AAA ratings.
"That is an example of well-designed fiscal policy," Chambers said.
But S&P was doubtful whether those steps can be taken in Washington, taking into consideration the "debacle" surrounding the last-minute increase of the debt ceiling last week.
"We think elected officials across the political spectrum are unable to proactively take measure to put U.S. public finances on a sustainable footing in the same sort of matter as some our most highly rated governments," Chambers said.