US & Canada

White House: US must do better after debt deal

New York Stock Exchange (5 August 2011)
Image caption The credit downgrade could raise the cost of borrowing for the US government

The US "must do better" in tackling its pressing economic challenges, the White House says, after a deal on debt was signed into law last week.

Spokesman Jay Carney said the talks on raising the US debt ceiling in order to avoid a default had taken too long and been too divisive.

The statement comes a day after rating agency Standard & Poor's downgraded the country's top-notch AAA rating to AA+.

The US uncertainty led to a week of turmoil on the world financial markets.

There were fears that the US could be heading for a double-dip recession and that the sovereign debt crisis in the eurozone could spread to Italy and Spain.

The compromise US debt deal, which was passed in the Senate on Tuesday, raises the debt limit by up to $2.4tn (£1.5tn) from $14.3tn, and makes savings of at least $2.1tn in 10 years.

Mr Carney said the deal had been "an important step in the right direction", but added that "the path to getting there took too long and was at times too divisive".

'Debt addiction'

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Media captionStandard & Poor's David Beers: "We think over the next two years the rating could fall"

He said the US must now "do better to make clear our nation's will, capacity and commitment to work together to tackle our major fiscal and economic challenges".

President Barack Obama would now encourage the bipartisan fiscal committee and members of Congress to "put our common commitment to a stronger recovery and a sounder long-term fiscal path above our political and ideological differences", said Mr Carney.

In its report issued late on Friday, S&P said the US deal did not go far enough, and that the "political brinkmanship" shown in debates was proof that "the effectiveness, stability, and predictability of American policymaking and political institutions have weakened".

The credit rating downgrade, the first in the history of the US, is being seen as a major embarrassment for Mr Obama's administration and could raise the cost of US government borrowing.

US economic troubles

The US has been pulled back from the brink of default but its worries are far from over. See how poor growth and lacklustre consumer spending are dogging the world's largest economy.

With a bill to raise the US debt ceiling finally passed, the US has managed to avoid the catastrophic effects of a debt default. Now the focus has moved to the underlying economy and whether GDP is about to stall.
Disappointing economic data in recent weeks shows that economic growth in the US is much weaker than expected. Economists now say the recession was deeper than they had previously thought.
Only 18,000 jobs were added to the economy in June, the lowest number in nine months. High unemployment is considered a key factor in the sluggish economy as it leads to a lack of demand for goods and services.
The lack of security caused by high unemployment affects consumer spending, which fell in June for the first time in almost two years. That lower spending means less demand in manufacturing, which in turn leads to fewer jobs.
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John Chambers, head of S&P's sovereign rating committee, criticised the way the US had reached its debt deal, saying it was "not how most highly-rated governments run themselves".

Earlier on Saturday, China - the world's largest holder of US debts - criticised the country for its "addiction to debt".

State news agency Xinhua said unless the US cut its "gigantic military expenditure and bloated welfare costs", another downgrade would be inevitable.

It called for the printing of US dollars to be supervised internationally and repeated China's contention that a new global reserve currency might be needed.

Analysts say neither suggestion is likely to happen. But China - the world's largest holder of US debt - is clearly worried about its holding and also worried about criticism at home for having so much of the country's savings in US investments.

"The spluttering world economic recovery would be very likely to be undermined and fresh rounds of financial turmoil could come back to haunt us all," it said.

It said the US should stop "letting its domestic electoral politics take the global economy hostage".

Other countries, including Australia, France and Japan, said they retained their faith in US bonds.

The other two major credit rating agencies, Moody's and Fitch, said they had no immediate plans to follow S&P in taking the US off their lists of risk-free borrowers.