Rating firm Egan-Jones cuts its credit rating on the U.S. government to "AA" from "AA+" with a negative watch, citing a lack of progress in cutting the mounting federal debt.
"When debt-to-GDPexceeds 100 percent, a country's financial flexibility becomes increasingly strained," Managing Director Sean Egan wrote in his report on the downgrade. "For the first time since World War II, U.S. debt exceeds 100 percent."
The U.S. dollarfell slightly against the yen after the news, which came at the start of Asia's trading day.
Egan said he sees no end in sight to the increasing deficit.
"With an annual federal budget deficit in the area of $1.4 trillion, debt is likely to reach $16.7 trillion as of the end of 2012 while assuming GDP grows 2.5 percent, total GDP is likely to reach $15.7 trillion. Therefore, as of the end of 2012, debt-to-GDP is likely to be in the area of 106 percent."
Economic growth, meanwhile, has averaged 2 percent to 2.5 percent, with economic growth "at best stagnant, at worst negative" if adjusted for inflation, Egan wrote.
Meanwhile, Congress has done little, according to Egan. The bipartisan "super committee" that sought spending cuts of $1.5 trillion over 10 years "was a failure," he said. "Obviously, the current course is not enhancing credit quality. Without some structural changes soon, restoring credit quality will become increasingly difficult."