by Pejman Yousefzadeh on March 14, 2010


Moody’s is ticked off:

Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.”

It projects that the federal borrowing is so high that the interest payments on government debt will grow to more than 15 per cent of government revenues, about the same by the end of the decade as the previous 1980s peak.

This time the servicing burden would be harder to reverse, however, because it would not be caused by high interest rates but by high debt levels.

Pierre Cailleteau, head of sovereign ratings at Moody’s, said: “The size of debt makes the US vulnerable to an interest rate shock . . . but the level of fiscal ambition is not one that secures for sure the [triple A] rating.”

Cue Krugman & Co. to step forward and tell us that really, we don’t have to worry about the budget deficit, and that in fact, we should be pushing for yet another budget-busting round of fiscal stimulus. Of course, if we follow Krugman’s advice, and lose our credit rating, he’ll make like Macavity and depart the scene of the crime. And yes, I know that the story states that we are in no immediate danger of a downgrade. But the warnings are increasing, and things are going to get a whole lot worse on the fiscal front down the line.

As such, dare we hope that the Obama Administration has finally gotten the message, and realizes that we are going down an unsustainable fiscal pa . . . oh, who am I kidding?

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