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Debate: S&P downgrade of U.S. debt

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Was S&P's downgrade of U.S. debt from AAA to AA+ justified?

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Background and Context of Debate:

Standard & Poor’s removed the United States government from its list of risk-free borrowers for the first time on August 5, 2011, a downgrade that is freighted with symbolic significance but carries few clear financial implications. The company, one of three major agencies that offer advice to investors in debt securities, said it was cutting its rating of long-term federal debt to AA+, one notch below the top grade of AAA. It described the decision as a judgment about the nation’s leaders, writing that “the gulf between the political parties” had reduced its confidence in the government’s ability to manage its finances. The Obama administration reacted with indignation, noting that the company had made a significant mathematical mistake in a document that it provided to the Treasury Department on August 5, overstating the federal debt by about $2 trillion. The downgrade could lead investors to demand higher interest rates from the federal government and other borrowers, raising costs for governments, businesses and home buyers. But many analysts say the impact could be modest, in part because the other ratings agencies, Moody’s and Fitch, have decided not to downgrade the government at this time. The debate below will focus on whether or not Standard & Poor's downgrade of the U.S. debt was justified.

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