Those unfamiliar with the background should go here first. Moody’s Investor Services has claimed that the US is moving ‘substantially’ closer to losing its AAA credit rating:
The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.
Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.
“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”
Given the huge market expectation that the US could never ever lose its AAA rating, a downgrade could be almost as bad as defaulting on debt – at least in the short term.
US Republican Deputy Whip Peter Roskam, who sits on the Ways and Means Committee, recently noted the following:
How close are we to a default event that would without doubt drag down our bond rating? Right now, we are approaching a point where our national debt is equal to our gross national product — the entire annual economic output of the United States. A study by Brookings Institution researchers of 35 default events shows that 25 of them occurred when the defaulting country had a lower debt to GDP ratio than the United States has today.
UPDATE