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Markets Drop; S&P Defends US Rating Cut

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Global financial markets dropped sharply Monday in reaction to an unprecedented downgrade of the U.S. government’s credit rating and continued concerns about government debt problems in Europe.

U.S. stock markets dropped more than 3 percent in the first hours of trading Monday. Major indexes across Asia closed between 2 percent and nearly 4 percent lower, and European stocks were down more than 3 percent in mid-day trading.

Monday’s trading sessions were the first chance for many investors to react to the change in the Standard & Poor’s rating, which was announced Friday evening after world markets had closed. U.S. government debt is now rated “AA+,” one level below the highest possible rating of “AAA.”

The rating agency held a conference call Monday to defend its decision. S&P Managing Director John Chambers, head of the committee that made the ratings decision, said increasing debt levels in the United States and the inability of Congress and the president to reach political consensus for significant deficit reductions were “no longer comparable with the most highly rated governments.”

U.S. leaders have criticized the S&P downgrade, which signals that the agency believes U.S. government bonds are now a riskier investment.

U.S. Treasury Secretary Timothy Geithner says the S&P used “terrible judgment” when it downgraded the U.S. credit rating last week from the top triple-A grade. Geithner says the S&P showed a “stunning lack of knowledge” about the mathematics used to draw up a federal budget.

In Europe, markets in Italy and Spain rose sharply Monday after the European Central Bank said it would buy government bonds from both countries in an effort to calm fears about the eurozone debt crisis. But other major European markets lost ground.

Geithner said Sunday the United States has a very resilient and strong economy. He said U.S. treasuries are an absolute safe investment and that there is no risk of the United States not being able to meet its obligations.

The other two major credit rating agencies – Moody’s and Fitch – have so far kept the U.S. triple-A rating.

S&P blamed Congress for months of political haggling over a deficit reduction deal that S&P says does not go far enough. The deal calls for cutting the deficit by more than $2 trillion over 10 years. S&P called for $4 trillion in savings.

Geithner said Sunday he will not resign. He was considering leaving the job when the debt ceiling debate in Congress ended. A White House spokesman said President Obama is pleased that Geithner will remain at his post.

Republican Senator Rand Paul and Congresswoman Michelle Bachmann – a Republican presidential candidate – have both publicly demanded that Geithner quit, holding him and the Obama administration responsible for the lowered credit rating.

VOA

VOA

The VOA is the Voice of America

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