Debt

Moody’s Warns of US Credit Downgrade, Citing Lack of Deficit Reduction

No Comments

While pundits and bloggers hash out who are the real winners and losers of this fiscal cliff deal, Moody’s made it clear that the inability of the deal to address our enormous deficit might negatively effect our bond credit rating [emphasis added]:

New York, January 02, 2013 — Moody’s Investors Service said that the fiscal package passed by both houses of Congress yesterday is a further step in clarifying the medium-term deficit and debt trajectory of the federal government. It does not, however, provide a basis for a meaningful improvement in the government’s debt ratios over the medium term. The rating agency expects that further fiscal measures are likely to be taken in coming months that would result in lower future budget deficits, which are necessary if the negative outlook on the government’s bond rating is to be returned to stable. On the other hand, lack of further deficit reduction measures could affect the rating negatively. Notably, yesterday’s package does not address the federal government’s statutory debt limit, which was reached on December 31. The need to raise the debt limit may affect the outcome of future budget negotiations.

While this is bad news given how terrible our congress is at actually addressing and solving problems, at least they didn’t simply blame gridlock and give the media a chance to smear the GOP and specifically the Tea Party, as they did when Standard & Poors downgraded the US for the first time ever nearly a year ago:

“The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge,” the company said in a statement.

If we had a competent political leadership, they’d take this to the bank and start beating the Democrats over the head with this news. But we don’t, so they can’t.

So congrats, politicians, you’ve successfully avoided the “Responsibility Cliff” – so now get to work and actually start making inroads into the deficit so that we don’t go over the “Credit Cliff.”