Moody’s is going to fire a shot across the bow of the USS Obama administration on Monday. The warning shot will state that even the current budget plan that the Obama administration has laid out may still not be enough to save the the AAA rating of the United States.
[…] 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 materialize, there would at some point be downward pressure on the triple A rating of the federal government.” […]
[…] 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.”
Moody’s worries that the government will struggle to get political agreement either to raise tax revenues significantly from their current low of 14.8 per cent of national income, or to cut federal spending far from its high of 25.4 per cent of national income.
The report follows concerns recently expressed about the US public finances from the other large rating agencies. Standard & Poor’s warned last week the triple A status of the US was at risk unless the country adopted a credible medium-term plan to rein in fiscal spending. Fitch Ratings issued a critical report on the US in January.[…] (The full article can be found at the FT)
Now all three of the ratings agencies have put the United States on notice. Either cut spending by significant amounts, or raise taxes significantly. Which way do you think the administration will go?
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