Moody’s To US: Aaa Rating A Privilege, Not A Right

It cannot be good news that the warnings from credit agencies about the US debt and deficit come almost monthly now. Moody’s, in its latest quarterly AAA Sovereign Monitor, examined the financial health of the four largest nations that have the ratings agency’s highest rank–the US, UK, France, and Germany. Although Moody’s said that none of the nations faced an imminent problem, it did warn that the countries have “debt reversibility” trouble, which means that it is increasingly more difficult for them to pay down their national debt obligations.

“In light of the muted recovery, discretionary fiscal adjustment is now the principal means of repairing the damage that the global crisis has inflicted on government balance sheets,” Pierre Cailleteau, managing director of Moody’s Sovereign Risk Group, said in a statement according to MarketWatch. And, that is at the core of the problem in general and in the US in particular.

The American government is still for a deficit of over $1.5 trillion this year. If the economy does not recover, and with its tax receipts lackluster, the red ink could be as large again in 2011. The unemployment that creates low IRS collections also leads the government, at least based on its current philosophy, to ratchet up spending for the social safety net, including extended unemployment benefits.

The Administration and Congress jawbone the deficit issue, but there is no sign that they intend to do anything meaningful about it. Like almost all countries burdened by debt, the US hopes that rapid GDP expansion, which will happen at some point in the relatively near future, will cause tax receipts to fill the nation’s treasury again.

China’s premier Wen Jiabao recently spoke about a global double-dip recession as a possible outcome of the still-boiling financial crisis and high unemployment. Those are odd words from the mouth of a man who runs a nation which has nearly 10% GDP growth. But, even from Beijing he can see what Moody’s sees. The aggregate foreign debt of the world’s largest developed nations will grow for years.

Douglas A. McIntyre