Sunday, March 14, 2010

Moody's fires warning shot at U.S. on credit rating

Bad news to start your Monday morning:
Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.”

This time the servicing burden would be harder to reverse, however, because it would not be caused by high interest rates but by high debt levels.

Pierre Cailleteau, head of sovereign ratings at Moody’s, said: “The size of debt makes the US vulnerable to an interest rate shock . . . but the level of fiscal ambition is not one that secures for sure the [triple A] rating.”
The Wall Street Journal take on Moody's review:
The credit-rating company repeated that there was no immediate risk of a downgrade of the big Aaa-rated countries, although the slight risk they could fail to get their finances under control, and thus be downgraded, has increased. Moody's concluded that "on balance, we believe that the ratings of all large Aaa governments remain well positioned—although their 'distance-to-downgrade' has in all cases substantially diminished."

All large Aaa governments "have the capacity to rise to the challenges they face," the rating agency said in itsquarterly report on Aaa-rated sovereign issuers.
The only way the United States government will rise to the financial challenges we face, is if we stop spending money we don't have; stop taxing, punishing and regulating every productive movement in our economy; stop punishing profit and thrift; and stop rewarding and enabling sloth.  I hope Moody's qualified optimism about our country is not misplaced.

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