Moody's threatens to downgrade US

Moody's threatens to downgrade US



























Moody's website (AFP Photo / Joel Saget)







As the budget deficit tops $1 trillion for the fourth time, the US
might lose its top triple-A debt rating unless it finds a way to
decrease the debt, according to Moody’s Investors Service.


If next year’s budget negotiations fail to produce policies that
would reduce the deficit, Moody’s would likely lower the rating to Aa1,
which is one step below the current Aaa rating. If resulting policies
would stabilize or decrease the debt, then Moody expects to keep the
current rating as it is.
The Congressional Budget Office (CBO) on
Monday said that the government ran a $192 billion deficit in the worst
August on record, which brings the federal government to a $1.17
trillion deficit for the fiscal year 2012.


While the deficit is
slightly lower than last year’s, the CBO predicts that the government
will face another trillion-dollar shortfall next year.

Last year,
rival rating agency Standard & Poor’s downgraded the US from its top
rating after lawmakers failed to agree on a deficit reduction plan.
While on the verge of a government shutdown due to passionate
disagreements between Democrats and Republicans, both the US dollar
value and the debt rating went down while the Euro was on its four-month
high.

If debt negotiations bring a fiscal cliff upon the US, then
Moody’s would likely downgrade the rating – but otherwise it would
remain the same. With lawmakers campaigning for their positions as the
November election approaches, Congress is expected to do little until
votes are cast. That leaves Congress with less than two months to
prevent a fiscal cliff that could be triggered by tax increases and
automatic spending cuts. If Congress allows the Bush-era tax cuts to
expire and allow automatic spending cuts to go through, financial
catastrophe is foreseeable.

“Moody’s views the maintenance of the Aaa with a negative outlook into 2014 as unlikely,” the agency writes in a press release. “The
only scenario that would likely lead to its temporary maintenance would
be if the method adopted to achieve debt stabilization involved a
large, immediate fiscal shock – such as would occur if the so-called
“fiscal cliff” actually materialize – which could lead to instability.
Moody’s would then need evidence that the economy could rebound from the
shock before it would consider returning to a stable outlook.”

The
CBO predicts that a downgraded rating would shrink US gross domestic
product by 2.9 percent in the first half of next year, which would lead
to a “significant recession” and a loss of two million jobs.

With
so much depending on the negotiations of Congress, lawmakers are
burdened with a heavy decision that could affect the US economy for
years down the road.

http://rt.com/usa/news/us-rating-debt-deficit-898/




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9/11/2012 07:55:00 PM

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