- Source: OECD Statistics
Moody’s threatened to downgrade America’s sovereign debt primarily because the Democrats and Republicans cannot settle on a compromise to increase the debt cap. The action will probably add pressure to House Republicans who are seen by the public, whether correctly or not, as the aggressors in the debate. Republicans have called for massive budget cuts to steady the deficit increase and part of those plans may involve a retooling of Medicare,, a very unpopular idea among citizens over 50..
“Moody’s Investors Service said today that if there is no progress on increasing the statutory debt limit in coming weeks, it expects to place the US government’s rating under review for possible downgrade, due to the very small but rising risk of a short-lived default. If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody’s to change its outlook to negative on the Aaa rating.”
And, a settlement is not enough, in Moody’s eyes. The government also needs to make substantial progress as it sets budget levels over the next decade.
Douglas A. McIntyre
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