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Economy
See other Economy Articles

Title: Moody's: Neither debt plan protects the nation's AAA rating
Source: The Hill
URL Source: http://thehill.com/blogs/on-the-mon ... rotects-the-nations-aaa-rating
Published: Jul 30, 2011
Author: Peter Schroeder
Post Date: 2011-07-30 20:03:45 by jwpegler
Keywords: None
Views: 2500
Comments: 4

The "limited magnitude" of both debt plans put forward by congressional leaders would not put the nation's AAA credit rating back on solid footing, Moody's Investors Service announced Friday.

"Reductions of the magnitude now being proposed, if adopted, would likely lead Moody's to adopt a negative outlook on the AAA rating," the credit rating agency said in a new report. "The chances of a significant improvement in the long-term credit profile of the government coming from deficit reductions of the magnitude proposed in either plan are not high."

It added that "prolonged debt ceiling deliberations" have increased the odds of a downgrade, but that the firm is still confident policymakers will avoid a default.

"It remains our expectation that the government will continue with timely debt service," the firm said.

It also clarified that as far as it is concerned, the nation will only default if it misses an interest or principal payment on U.S. debt, not if it misses payments on other obligations like federal employee salaries or Social Security benefits. (EXACTLY RIGHT)

The report also gives credence to a claim popular among Republicans: that the government has enough cash to avoid a default even past the Aug. 2 deadline set by the Treasury Department.

"If the debt limit is not raised before August 2, we believe that the Treasury would give priority to debt service payments and could thus postpone a potential debt default for a number of days," it said. "Revenues would be more than adequate for some period of time to meet those payments, although other outlays would be severely reduced as a result."

Moody's previously put the nation's top credit rating on watch for a downgrade on July 13, as lawmakers continue to fight over a deal to raise the debt limit.

While Moody's is confident it will not have to downgrade the nation's rating because of a default, it maintained that long-term debt and deficit problems will continue to weigh on the AAA mark.

As Republicans and the White House fight over the length of a debt limit increase, Moody's said it would not reaffirm the nation's AAA rating unless there is at least a six-month boost to the debt limit.

However, if the nation were to default for a short period of time, Moody's said it would knock its credit rating down to AA, under the assumption that the default would be quickly rectified and investor losses would be minimized. However, in the "extremely unlikely" situation that investors do lose on Treasury investments, a lower rating could be given.

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Begin Trace Mode for Comment # 3.

#1. To: jwpegler (#0)

" Circumstances aside, there is another factor at play in the recent dearth of posting: the inherent difficulty of saying anything meaningful about a political world that has become almost totally hallucinatory. This is currently being exemplified by the debt-ceiling “crisis.” Every single element of the public presentation of this “crisis” is transparently, even brazenly false.

www.chris-floyd.com/

Brazenly False.

Why does the Federal Reserve exist? Why does it not have a debt limit?

mcgowanjm  posted on  2011-07-30   21:05:17 ET  Reply   Untrace   Trace   Private Reply  


#2. To: All (#1)

Plus, these banks earn interest at the Federal Reserve for an absolute risk free bet. Did we also mention this only occurred because of the bailouts that were funded by taxpayers? So you see, taxpayers are essentially allowing the too big to fail to have absolutely no debt ceiling yet somehow our politicians are trying to convince the public that they now need to tighten their belts. This is the twisted world we now live in.

mcgowanjm  posted on  2011-07-30   21:21:51 ET  Reply   Untrace   Trace   Private Reply  


#3. To: All (#2)

There is no bigger double standard than the current American banking system.

mcgowanjm  posted on  2011-07-30   21:24:01 ET  Reply   Untrace   Trace   Private Reply  


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