White House Optimistic Despite Dour S&P Report

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U.S. stocks dropped sharply after the Standard & Poor's Rating Service warned there is a one in three chance it will downgrade its outlook on America's debt from "stable" to "negative" in the next two years.

On Monday, the Dow Jones industrial average dropped 140.24 points to 12201.59 - its biggest drop since mid-March.

"The reason for the negative outlook is that against the backdrop of what we think is the continuing rising tide of government debt," said David Beers, global head of sovereign and international public finance ratings at Standard & Poor's.

"We think it is uncertain to us whether Congress or the administration, as they are now trying to do, can come up with an agreement over the next couple of months, or indeed between now and the elections next year, that will make a big dent in that underlying debt trajectory," he added.

The White House downplayed the report, calling the decision a political judgment that shouldn't be taken too seriously.

"As for its political analysis, we simply believe that the prospects are better," White House Press Secretary Jay Carney said. "We think the political process will outperform S&P expectations."

But others say the action is cause for concern. If the S&P lowers its rating on U.S. debt, the federal government will have to pay more interest when it borrows money.

"One of the scary things is the amount of debt we have right now," noted David Keating, senior counselor for National Taxpayers Union.

"If we have interest rates go up even just a tiny bit, that massively boots the interest cost on the debt, makes it harder to balance the budget -- probably even harder to compute our taxes in the future because they'll probably get more complicated and maybe pass higher rates too," he said.

Beers says while other countries like the U.K. and Germany have already taken steps to decrease their deficits, he doesn't see that happening in the U.S. until 2014 or later.

"So we think in those examples that I have just given, all of those governments, have very clear plans to bring those deficits down. In this country, in the United States, people are still talking about a plan," Beers said.

Meanwhile, President Obama and congressional Republicans continue to spar over how to reduce the nation's red ink.  Both sides have proposed very different plans for cutting trillions of dollars from the deficit over the next 10 to 12 years.

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CBN News
Charlene  Aaron

Charlene Aaron

CBN News Reporter

Charlene Aaron serves as a general assignment reporter and helps anchor for the CBN News Channel.  Follow her on Twitter @CharNews and "like" her at Facebook.com/CharleneIsraelCBNNews.