About The Abyss

August 3, 2011 | Filed under Big government,Democrats,Economics,Federal Budget,Republicans | Posted by

 

The republican-led Congress took a timid step towards responsibility Sunday, for which every politician and lobbyist in D.C. gave themselves credit and applause.  The House debated then approved the deal, as did the Senate, and President Obama signed it into law on Tuesday.  The credit rating agency Moody’s came back Tuesday with confirmation that the United States retains its Aaa rating with Moody’s, but with a negative outlook.   As of this writing, Standard & Poor’s has not released a statement regarding the United States’ AAA/A-1+ rating and the “CreditWatch Negative” alert issued July 18 remains unchanged at this time.  For both agencies, the United States enjoys the highest possible rating, on the basis of economic resiliency, financial strength, and susceptibility to event risk.  In other words, there remains no concern that the United States will fail to pay its debts, nor that the country will fail to honor its obligations in the foreseeable future, but the amount of debt carried by the United States must be seriously addressed in the coming year, and the plan fulfilled within the decade.

 

In its most recent release, Moody’s went into some detail regarding its concerns.  

 

The money quote:

“The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2-1.5 trillion by yearend have virtually eliminated the risk of such a default, prompting the confirmation of the rating.”

Sounds good, but Moody’s goes on:

“today’s agreement is a first step toward achieving the long-term fiscal consolidation needed to maintain the US government debt metrics within Aaa parameters over the long run … In assigning a negative outlook to the rating, Moody’s indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the US government’s funding costs over and above what is currently expected.”

In other words, we’re still on probation.  So what does Moody’s expect from a responsible government?

“First, while the combination of the … process and automatic triggers [can] … induce fiscal discipline, this framework is untested … Moody’s baseline scenario assumes that fiscal discipline is maintained in 2012 … Second, further measures will likely be required … Specifically, Moody’s expects to see a stabilization of the federal government’s debt-to-GDP ratio not too far above its projected 2012 level of 73% by the middle of the decade, followed by a decline.”

Gee, that sounds a lot like what the conservatives suggested, doesn’t it?  But there’s more from Moody’s:

“Recent downward revisions of economic growth rates and the very low growth rate recorded in the first half of 2011 call into question the strength of potential growth in the coming year or two. Continued very low growth would make fiscal consolidation more difficult. As a result, Moody’s will also be monitoring the pace of growth as it relates to the fiscal effort.”

In other words, government cannot get away with tax hikes that keep unemployment high and hurt business, just because they need to pay down the debt.   The only way to get the job done is to make serious spending cuts, revive the economy by keeping government out of the way, and to raise revenue without raising anyone’s tax rate.  Again, this what conservatives have proposed all along.  Cutting spending reduces the burden and the economy will come back just fine if government will just back off from ridiculous new rules and punitive policies.

Other articles worth reading:

 MOODY’S PLACES RATINGS OF FIVE OF 15 Aaa STATES ON REVIEW FOR POSSIBLE DOWNGRADE DUE TO U.S. SOVEREIGN RISK VULNERABILITY 

 

MOODY’s PLACES Aaa RATINGS of 177 U.S. PUBLIC FINANCE ISSUERS ON REVIEW FOR POSSIBLE DOWNGRADE DUE TO REVIEW OF U.S. GOVERNMENT’S Aaa RATING

 

Sovereign Bond Ratings

 

 

 

 

 

 

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Posted by on August 3, 2011.
Filed under Big government, Democrats, Economics, Federal Budget, Republicans.
DJ Drummond holds an MBA with a concentration in Accounting, and has worked in Finance/Credit for 13 years, with 17 years of Operations Management experience before that. He writes on political, religious, and cancer-related issues, with the occasional foray into satire and snark.

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  • Anonymous

    I am surprised the Obama crowd didn’t put out a vote to raise the credit rating to AAAAA

  • Anonymous

    Wishing for Obama and the Dummycrats to stop meddling in peoples affairs financial and otherwise is  not going to happen.  They are born to it. We either need to outnumber them to mitigate the damage, divide into separate countries or go into bankruptcy.

    There are other options available like impeachment, but that’s not going to happen without riots breaking out in all leftist urban areas.

  • Anonymous

    You will note however, that the Chinese have downgraded our credit rating.  They have also stopped purchasing short-term notes from us.  I’m sure Barry and company think that the Japanese will pick up the slack, never mind that recent horrific earthquake.

    Hey!  Maybe the Saudi’s will pick up some of it!

    Okay, stop laughing!

    • djdrummond

      I’m not worried about China, Garand.  Their ratings are based more on politics than financial metrics.  And they had already taken on as much in our notes as they will until interest rates improve.  For all our screw-ups, US treasuries are considered the safest and most stable investments for sovereign investment, but other notes have become attractive for potential yield, especially Japan and Ireland, although those carry significant elements of risk.  Japan fo example has a much higher debt load per-capita than the US and they also have serious liquidity issues, but China likes the long-term rates being offered, and sees investment as a way to build bridges with Tokyo.  As a by the way, Obama’s lack of tact in state relations is another reason for the slowdown in buying; no one wants to do favors for someone who can’t take care of his friends.  That is, China sees how we are treating Israel and England, and has reason to ask how they will be respected if they find they need something from us.

  • http://pulse.yahoo.com/_W6UJJOM4PP4XLSBG6N4LROVSQE Retired Military

    Moody’s is simply buying its time to see if a Republican gets elected in 2012 so the adults are in charge and they know that something constructive will be done.  If obama is reelected watch the rating go down down down.

    • djdrummond

      That’s probably very true, R.M.  The details of what Moody’s says is needed are very much like what you can read of hear from several conservative leaders, and that’s no coincidence.  Obama has hurt the economy and frankly just replacing him with a republican (let alone a conservative) would result in lower unemployment and saner regulatory policies just from getting away from Obama’s failed experiments in neo-socialism.

      • http://www.rustedsky.net Anonymous

         They haven’t failed yet – they just need more money thrown into the boilers to power them! 

        Only when we’re completely out of money, credit, and the gold in Ft. Knox (not to mention any gold teeth you might have lying around) will they reluctantly admit… they need more money, dammit!

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

    The ratings agencies have been pretty clear about our problem.  We need to cut at least $4-5 trillion off the deficit in this ten-year budget window to keep our total debt in the manageable range.  None of the debt ceiling proposals, including the final compromise, does that.  Ryan’s budget, adopted by the House but tabled in the Senate, does cut enough.

    This is also why Democrats have failed to produce a serious budget since enacting ObamaCare.  Set down in black and white, the back-breaking costs of that program and its disastrous effect on our fiscal condition would be evident.  So Reid put in a clause on the Debt Ceiling compromise that “deemed” those figures to be the budget for the next two years!

    • djdrummond

      Fortunately Adjoran, that clause is not binding on the Congress even now, especially if they gut it up and go after the really big issue President Bush brought up six years ago; Social Security Reform.  You may have noticed that Obama hinted that he would consider ‘minor’ adjustments to Medicare, in exchange for Defense cuts?  It’s an admission that the necessary cuts will have to include ‘non-discretionary’ programs, and the most wasteful program that could literally save trillions with some relatively simple corrections is SSI.  Obama knows that SSI is VERY vulnerable, so he’s trying to deflect attention to the more complex Medicare in order to keep SSI reform off the table until he escapes back to Chicago after his term ends.  

  • http://www.facebook.com/Stan25 Stan Brewer

    I wish the Congress would have had the cajones to have whacked $10 trillion off the spending immediately if not sooner. That would have made all of the financial people happy. The cuts would have shut down some of the least needed parts of the government, like a few departments, the czars, a few redundant agencies, cuts in Congress salaries and staffs and last but not least, the White House staff.