Moody’s Warns Congress Of Credit Downgrade If Debt Ceiling Isn’t Raised

One of the two companies that rates bond issues is sending a warning to Congress about the ongoing debate on the debt ceiling:

Moody’s Investors Service said Thursday there is a very small but rising risk of a short-lived default by the United States if there is no increase in the statutory debt limit in coming weeks.

In a statement, Moody’s saidit would put the Aaa U.S. rating on review for a possible downgrade if lawmakers in Washington do not make substantive progress in budget talks by the middle of July.

“Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely,” Moody’s said.

The ratings agency, whose announcement follows a similar warning from Standard & Poor’s earlier this year, said if the debt limit is raised and default avoided, the Aaa rating will be maintained. Still, the rating outlook will depend on the outcome of debt talks in Washington, Moody’s said.

“Moody’s downgrade adds pressure on Congressional leaders to work hard at reaching an agreement to increase the debt ceiling,” said Kathy Lien, director of currency research at GFT Forex in New York.

So will this finally get Congress to act? Don’t count on it.

FILED UNDER: Congress, Deficit and Debt, Quick Takes, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Tsar Nicholas says:

    Hell, the irony here is that Moody’s, Fitch, S&P, et al., haven’t already downgraded federal debt. Have they actually looked at our national debt, budget deficit and debt service figures??? Geez. If you evaluated the U.S. like a private company you’d already have Treasury debt rated as junk.

    Putting that aside, regarding the debt ceiling thing, let’s not be naive. At the end of the day the White House will cave and agree to material spending reductions. Boehner, et al., will cave in part and accept lesser spending reductions that those demanded by the frothing-at-the-mouth “Tea Party” sorts.

    Then the debt ceiling will be raised and it’ll be time to rise, cycle and repeat.

    Team Obama always blinks when playing games of domestic political chicken. Boehner, Cantor and McConnell are not dumb enough to go full Gingrich circa 1995 and thereby to help reelect Obama.

  2. matt says:

    If you evaluated the U.S. like a private company you’d already have Treasury debt rated as junk.

    In contrast to the triple A ratings they gave to the junk being sold in the private sector prior to the financial explosion?

  3. Patrick T. McGuire says:

    Moodys action should be taken as a warning that we have too much debt already. If the Republicans get their way, there will be less spending and debt. That works for me.

  4. tom p says:

    Moody’s…. I remeber that name…. Where was it….

    Oh yeah, they rated a bunch of sewer treatment AAA.

    They still matter?

    Somebody listens to them?

    Doug…. THINK!

    Why do they still exist? If the free market actually worked, they would have gotten a royal fist f’n right up the you know what in ’07-08. As is, WE did. Why? And you know the irony of it all? People like you still listen to them.

  5. john personna says:

    Tsar and Patrick, here’s a quick lesson for you.

    First of all, remember that ratings services never tell markets anything they don’t already know.

    Second, you don’t have to look to a ratings agency on sovereign debt, you only have to look at rates.

    Greece has to pay 16.15% to float 10 year bonds. Moody’s downgrades and it moves to 16.25%. Idiot news agencies say the rate moved 0.10% percent on the downgrade. No, the downgrade happened because of the whole 16% situation.

    Meanwhile US 10 year bonds trade at 3%, below the rate of inflation. No one on the planet borrows so cheap as the US government.

  6. wr says:

    Why aren’t these people in jail yet?

  7. Herb says:

    If the Republicans get their way, there will be less spending and debt.

    Well, the Republicans got their way for most of the aughts. It did not result in less spending, nor less debt.

  8. Patrick T. McGuire says:

    @Herb

    Yep, you’re right. And your point?

  9. Moosebreath says:

    “And your point?”

    I’m not Herb, but mine would be that Republicans talk a different game on the deficit than they actually deliver. It would also include citing Dick Cheney’s comment that deficits don’t matter (at least when Republicans are in charge).

  10. TG Chicago says:

    His point may be that Republicans are fiscal frauds. They use the language of deficit hawks to stymie the objectives of empowered Democrats, but when it’s their turn, they change their tune to “deficits don’t matter”.

  11. Herb says:

    And your point?

    There’s no reason to believe, based on past performance, that “if the Republicans get their way, there will be less spending and debt.” It seems more likely that under Republicans, we’ll have just as much spending, just as much debt….only fewer ways to pay for it.

  12. Patrick T. McGuire says:

    There’s no reason to believe, based on past performance, that “if the Republicans get their way, there will be less spending and debt.”

    I agree. But then we have a different batch of Republicans than we did in the past too. Just like the Democratic president of today is no JFK of the past.

  13. john personna says:

    Neither party is putting forward a responsible budget. That is the bottom line.

    And that makes it pretty crazy to argue who is “right” at this point in time. The answer is neither.

    Both parties are playing a political waiting game. Republicans want a bad budget for the 2012 election cycle, and Democrats think they can win at that same game, that is that they can make the Republicans “own” their unseriousness.

  14. Moosebreath says:

    “But then we have a different batch of Republicans than we did in the past too.”

    Really? So Ryan, Boehner, Cantor, et al weren’t there to vote for the Bush tax cuts, the unpaid for Medicare prescription drug benefit, keeping two wars off budget, etc? Try again.

  15. matt says:

    I agree. But then we have a different batch of Republicans than we did in the past too. Just like the Democratic president of today is no JFK of the past.

    I distinctly remember hearing that same crap back in 2000…

  16. ej says:

    “One of the two companies ”

    That should be 3… Moodys, S&P and Fitch