Even More Evidence of the Negative Consequences of not Raising the Debt Limit

Politico posts a report from MF Global that notes a failure to raise the debt ceiling would impact not just the federal government’s bond ratings, but local governments as well.

From the report:

  • In addition to placing the U.S. Government’s debt under review, Moody’s also placed on review approximately 7,000 Aaa-rated muni issuances with direct links to the U.S. debt.
  • Over the next two weeks, Moody’s will likely place on review for downgrade thousands of additional Aaa-rated muni issuances with indirect links to federal debt and liquidity.
  • We believe that Moody’s has correctly identified threats to hospitals, some local governments and all state governments, as they rely on government revenue streams – particularly, Medicaid funds; but we think the problem may be even larger.
  • We think Moody’s understates the threat to issuers that rely on federal education funds to sustain their normal
    operations.
  • We believe that there could be a domino effect.  If the prospect of a federal government shutdown continues to loom large, ratings agencies will be compelled to look more carefully at local school districts and municipalities that have issued securities for purposes of undertaking capital protects in support of primary and secondary education.

But, don’t listen to experts on the bond market, because what do they know?

FILED UNDER: Deficit and Debt, Quick Takes, US Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. Steve — don’t listen to any experts, esp. the pointy headed Ph.D professor types who occassionally use big words and fancy analysis to say complex but very useful things 🙂

  2. @Dave Anderson: Indeed.

  3. DC says:

    When the right runs into le mur d’argent, as the French socialists used to call it back in the day, who will win?