Moody’s must love being in the headlines of controversy this week.  First Greece, then U.S. banks, and now Uncle Sam… Moody’s has warned in a fresh report that if no progress is made on the statutory debt limit is made in the coming weeks that it expects to place the United States of America and its “Aaa” rating under review for a possible downgrade.  The basis is a short-lived default risk.

There is of course an out.  The note says that if the debt limit is raised and if the default risk is avoided, then the “Aaa” rating will be maintained.

The other side of the coin is that the rating outlook depends upon negotiations on deficit reduction.  Moody’s noted that a credible agreement on real deficit reductions will support a continued stable outlook.  Moody’s goes on to note that a lack of an agreement could create a “Negative” outlook on that “Aaa” rating.

What Moody’s noted is that it did expect political wrangling to occur but the degree of this fighting has exceeded its own expectations.

We already got one eighteen month countdown from Moody’s on this issue before.  That timeframe is being upgraded.

We could opine about this call from Moody’s.  All we can say is that if the United States is not a “Aaa” rating, then no one else is either.

Don’t be shocked when and if Congress makes for tougher regulatory pressure on the independent ratings agencies.  The ramifications of losing a “Aaa” or being close to losing a “Aaa” rating are far and wide.

JON C. OGG

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