I’ve being covering the risk to the US’s sovereign credit rating for a while now, at least since November 2008. Well a little while ago Barnaby Joyce was hounded down by Wayne Swan and his financial commentariat in the press for suggesting that a US downgrade was a growing distinct possibility. Well guess what?
Moody’s Investors Service fired off a warning on Wednesday that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit.
This is not the first time such a warning has been fired off. Moody’s previously issued a veiled warning last year. It seems now they are manning up to the reality of the US’s dire fiscal position.
“Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,” the rating agency added in an issuer note.
And why wouldn’t it? The US is lucky to have the rating it does now. Printing money to devalue your country and monetise your debt is not exactly likely to impute investors with confidence. Given the way the US Federal Budget is put together by both President, Congress and Congressional Committees – all responsibility but no accountability – there seems no prospect of bringing spending under control.
The cavalier way in which the government dismissedJoyce’s previous warnings makes it clear that Rudd is more concerned with attacking his opponents and savings his own skin than preparing the nation’s budget for the economic mess that would be created from a US downgrade. Certainly it would make the cost of borrowing in Australia more expensive, but I don’t see that stopping Rudd’s spend-a-thon.