President Barack Obama yesterday blamed a downgrade in the United States's credit rating on political gridlock in Washington and said he would offer some recommendations on how to reduce federal deficits - mainly through "common sense and compromise". He stopped short of sharp criticism of Standard & Poor's for its downgrade of U.S. debt to AA + from AAA on Friday.
Senior administration officials have accused S&P of going ahead with the downgrade despite a $2 trillion mathematical error.
In his first public comments on the credit downgrade, which S&P announced late Friday, Obama said Washington had the power to fix its own political dysfunction.
"Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a AAA country," Obama said.
Yet as Obama spoke, stock markets were registering another steep decline, dropping more than 450 points in afternoon trading.
Obama said in the White House appearance yesterday that he hopes S&P's downgrade of U.S. debt will give U.S. lawmakers a new sense of urgency to tackle long-term deficit spending. He did not believe the reductions could be carried out with spending cuts alone, Obama said.
S&P officials dropped the U.S. government's rating from the top rating of AAA to AA +, based on a lack of confidence that Congress and the president will be able to shake their political gridlock and make more serious reductions in the long-term debt.
The agency professed itself dissatisfied with the deal that lawmakers reached last week just in time to prevent a government default.
A joint bipartisan congressional committee, to be formed under the legislation passed last week that averted a government default, is to report its recommendations in late November on how to cut $1.5 trillion in spending over a decade.
Obama said he would offer his own recommendations for fixing the problem and cited again the need to raise taxes on wealthier Americans and make modest adjustments to popular but expensive entitlement programs.
"Making these reforms doesn't require any radical steps. What it does require is common sense and compromise," Obama said.
He said U.S. problems are "imminently solvable" but that political gridlock has made compromise extremely difficult and has contributed to a picture of economic uncertainty.
The president called on Congress to extend a payroll tax cut and unemployment benefits, saying if this is not done soon it will lead to 1 million fewer jobs and less economic growth.
Yet the president's reassurance that America is and was a blue-chip AAA country may have come a hair late for the Street, where equities tumbled for the second straight session. The CBOE Volatility Index, Wall Street's "fear gauge," jumped 45% to an intraday peak at 46.90, in the VIX's first leap above 40 since May 2010.
Yesterday's huge sell-off extended the losses in the previous week, which was Wall Street's worst in more than two years. The benchmark S&P 500 index lost 6.66% yesterday and the Dow Jones lost 5.55%.
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