China has scolded the U.S. over its “addiction to debt” after rating agency Standard & Poor's downgraded the United States' top-notch AAA rating to AA+.

State news agency Xinhua said unless the U.S. cut its “gigantic military expenditure and bloated welfare costs,” another downgrade would be inevitable.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” Xinhua, which acts as a propaganda wing for the Chinese government, said on Saturday.

But other countries, such as Australia, France and Japan, said they retained their faith in U.S. bonds.

The downgrade ended a week of growing uncertainty for the world economy.

Fears that the U.S. might be headed for a double-dip recession and the eurozone's debt problems were set to spread to Italy and Spain saw stock market sell-offs around the world.

The downgrade is a major embarrassment for the administration of President Barack Obama and could raise the cost of U.S. government borrowing.

This in turn could trickle down to higher interest rates for local governments and individuals.

According to BBC, the U.S. losing its AAA rating matters. It is a very loud statement that there has been an appreciable increase in the risk -- which might still be tiny, but it exists -- that the U.S. might one day struggle to pay back all it owes. Another important certainty in the world of finance has gone.

Of course many will argue -- and already have - that the record of ratings agencies such as Standard & Poor's of getting these things right in recent years has been lamentably poor. Think of all the subprime CDO products rated AAA by S&P that turned out to be garbage.

But S&P, Moody's and Fitch (and particularly the first two) still have a privileged official position in the world of finance: they determine what collateral can be taken by central banks from commercial banks, when those central banks lend to commercial banks.

(Source: Agencies)