Buffett says US merits 'quadruple A' rating: Reaction to the downgrade

S&P's decision to cut the US's prized AAA credit rating puts the superpower in a worse position than the Isle of Man and Hong Kong.

As world leaders and financial commentators struggle to digest the news, which comes on top of a turbulent week for world markets, we bring you reactions from across the globe. Be warned, many are unable to predict how the news will affect US assets and prospects for global markets...

S&P

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilise the government's medium-term debt dynamics.

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges."

UK

Business secretary Vince Cable

"Financial markets are now focusing on the credit-worthiness of governments. Three years ago, it was on the banks and banks' stability. Now it is on government debt.

"That's why the UK is in a fairly good position. The markets perceive that we have got a stable government... and we have got on top of the deficit problem and have got a clear programme to deal with it."

US

Unnamed sources were quoted as saying that a treasury official had spotted a $2trn [£1.2trn] mistake in the agency's analysis.

"A judgment flawed by a $2tn error speaks for itself," a US treasury department spokesman said of the S&P analysis.

China

China, the world's largest holder of US debt, had "every right now to demand the US address its structural debt problems and ensure the safety of China's dollar assets," said a commentary in the official Xinhua news agency.

"International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,"

France

" We can ask why this agency took this decision based on figures that are not consensual," French Finance Minister Francois Baroin said in an interview on RTL Radio. "There will be a debate in the U.S. about this decision. It's one out of three agencies. It's only one element."

Warren Buffett

Billionaire Warren Buffett said Standard & Poor's erred when it lowered the US credit rating and reiterated his view that the economy will avoid its second recession in three years.

He told Bloomberg television, the US merits a "quadruple A" rating,

"Financial markets create their own dynamics, but I don't think we're facing a double dip recession. Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence."

FT Alphaville

"The US is still, of course, rated AAA by Fitch and Moody's - the good and the bad to S&P's ugly. A split rating should mean fewer knock-on impacts. And as Martin Wolf always tells us - and anyone within earshot - credit rating agencies provide absolutely zero new information about US treasuries. It's the linkages and the contagion (the horror! the horror!) that matter.

"Therefore, we guarantee some European-style political bloviation, especially given the palaver over the maths, but the tangible impact remains unclear.

"Still, feels like a big deal, no?"

Wall Street Journal

Blog Entry

"...That isn't to say there couldn't be some unintended or unforeseen effect from the downgrade. When Lehman Brothers collapsed in September 2008, for example, there was an unexpected run on money-market funds. And there is a good chance that many investors will look to keep as many of their assets as they can in the shortest possible instruments. Such a desire to shorten up exposures in the run-up to the resolution of the debt-ceiling debate led overnight repo rates to spike. A repeat could be seen in coming days, although such an increase could ebb as quickly as it did last week.

...Experience also shows that a downgrade doesn't have to be catastrophic for government debt. When S&P downgraded Japan early last decade, yields on Japanese government bonds had a muted reaction and 10-year government bonds remain around 1% today.

Markets' immediate reaction aside, if the downgrade reinforces risk aversion, long-term economic growth could be affected. And the downgrade will challenge any investors still in denial that the global financial system has changed profoundly since the financial crisis."

BBC Business Editor Robert Peston

"In theory there will be a financial cost for the US government and US citizens, whose debt is priced off the interest rate paid by the government. Perhaps an additional half of a percentage point on interest rates, over time, according to some analysts? Perhaps an additional $100bn of interest costs for the US economy, according to the US bank JP Morgan?

"These estimates feel a bit like a wet finger held up in a gale swirling in different directions - more hunch than exact science.

"Probably the only thing to be said with any confidence is that the downgrade could hardly have come at a worse time, in that conditions in global markets are febrile.

"With the integrity of the eurozone, one of the three great economic areas, in some doubt, it is seriously discombobulating for banks, sovereign wealth funds, pension funds, insurers and central banks that the safe harbour of US Treasury Bonds, US government debt, no longer looks quite the comforting refuge in a storm that it once was."