After the first-ever downgrade of the U.S. government's credit rating, the White House said yesterday that President Barack Obama believes it's clear Washington "must do better" in tackling the deficit.
While Republicans and Democrats traded blame over Friday's move by Standard & Poor's to lower its AAA credit rating, a statement from White House press secretary Jay Carney was muted in tone and did not refer directly to the downgrade.
Meanwhile, Standard & Poor's is defending its decision after administration officials claimed that S&P's analysis was based on wrong calculations about the federal budget.
S&P officials say they came to a reasoned conclusion that the United States will have difficulty getting its soaring deficits under control. They say S&P had given plenty of warnings that a downgrade could be coming if Congress and the Obama administration did not produce a credible deficit-cutting plan.
The move by the key credit agency reflected disappointment with Tuesday's pact hiking the U.S.-borrowing limit, which called for roughly $2 trillion in deficit cuts over the next decade. It had previously called for cuts approaching $4 trillion.
In a statement yesterday, Carney called the hard-fought deal "an important step in the right direction." But he said "the path to getting there took too long and was at times too divisive. We must do better to make clear our nation's will, capacity and commitment to work together to tackle our major fiscal and economic challenges."
Standard & Poor's cited "difficulties in bridging the gulf between political parties" as a major reason for the downgrade to AA +, a level down from AAA. The rating agency has essentially lost faith in Washington's ability to work together to address its debt.
The downgrade, hours after markets closed on Friday, is a first for the United States since it was granted an AAA rating in 1917. S&P warned about a downgrade as far back as April. S&P said Friday the planned deficit cuts did not go far enough.
Both political parties used S&P's report to buffet their policy cases and attack the other side.
Republican House Speaker John Boehner said he hoped the downgrade served as a wake-up call to the Democratic Party.
"It is my hope this wake-up call will convince Washington Democrats that they can no longer afford to tinker around the edges of our long-term debt problem," Boehner said in a statement. "As S&P noted, reforming and preserving our entitlement programs is the key to long-term fiscal sustainability."
Senate Majority Leader Harry Reid, a Democrat, while not calling out Republicans by name, said S&P's action showed that the Democrats' preferred policy approach - a mix of raising taxes and budget cuts - was the correct way to move forward.
"The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners," Reid said.
At least one senator, Republican Mark Kirk, called for the president to bring Congress back from its August recess to try to address the issues raised by S&P's report.
The debt-limit deal called for a nearly $1 trillion down payment on deficit cutting, and instructed a special congressional committee to draw up a blueprint for another $1 trillion-plus by November.
Yesterday, Carney said the president intends for lawmakers "to put our common commitment to a stronger recovery and a sounder long-term fiscal path above our political and ideological differences."
Obama met with Treasury Secretary Timothy Geithner in the Oval Office late Friday afternoon before leaving for his weekend at Camp David.
S&P's decision, though, clearly angered the Obama administration.
Officials at the Treasury Department fought the downgrade until virtually the last minute. Administration sources familiar with discussions said the S&P analysis was fundamentally flawed. They spoke on condition of anonymity because they weren't authorized to discuss the matter publicly.
S&P had sent the administration a draft document in the early afternoon Friday and the administration, after examining the numbers, challenged the analysis.
In a statement, the Treasury Department said, "A judgment flawed by a $2 trillion error speaks for itself."
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