US job worries surge as debt-limit issue recedes

Updated on: Wednesday, August 10, 2011

Anger at US leaders for taking so long to strike a debt-ceiling deal has turned into high anxiety over jobs and the economy amid growing fears of a new recession.

The news that credit rating agency Standard & Poor's downgraded the nation's credit rating a notch for the first time ever only added to the tension.

The darkening clouds come in what should have been a good week for President Barack Obama.

After all, he and Republican leaders finally ended a months-long game of brinkmanship with a bipartisan agreement to raise the government's debt ceiling and to trim spending.

The deal kept the government from beginning to run out of cash last Tuesday, averting a first-ever US default and a possible global financial meltdown.

And there was a relatively good jobs report yesterday.

But applause for the debt-limit deal or the increase in jobs never came.

In fact, stock markets around the world tumbled during the week as grim new economic figures suggested the US recovery has stalled and as debt default tensions climbed in Europe.

Terms of the deal to extend the US government's borrowing authority and trim federal spending contributed to investor angst.

Many economists suggest the debt-limit measure could even wind up making economic problems worse if belt-tightening spending cuts coincide with a new recession.

And the Standard and Poor's downgrade late yesterday cast new doubts on the value of the US debt-limit deal.

The credit rating agency said it was cutting the country's top AAA rating by one notch to AA-plus because the deficit reduction plan passed by Congress did not go far enough to stabilise the country's debt situation.

As to that downgrade, economists suggested it might not have much actual impact, noting that the credit ratings of Japan, Canada and Australia had also been downgraded in recent years with few economic consequences.

And in the past few days, investors have been fleeing stock and commodity markets for the perceived safety of US Treasury bonds and bills.

That's a dramatic about face, since just a few days ago, global investors were worried that a US default on its debt would end the long-standing status of Treasurys as the world's safest-haven investments.

"Investors have voted and are saying the US is going to pay them," Mark Zandi, chief economist of Moody's Analytics.

Despite the S&P downgrade Friday night, "US Treasurys are still the gold standard," he said.

US job worries surge as debt-limit issue recedes

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