Yes, says Moody’s, if we don’t cut our debt to GDP ratio.
Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the US government’s Aaa rating and negative outlook, says Moody’s Investors Service in the report “Update of the Outlook for the US Government Debt Rating.”
If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable, says Moody’s.
If those negotiations fail to produce such policies, however, Moody’s would expect to lower the rating, probably to Aa1.
It’s time to stop messing around. Cut the damn spending already!
The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.
And, because our esteemed “leaders” were bickering like 10-year-olds on a playground and couldn’t come to an agreement, endangering our economic stability.
More broadly, 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 challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
Furthermore, S&P warned that if we don’t get our fiscal house in order, they’d downgrade us again!
We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
That means STOP RUNNING UP DEBT AND START MAKING CUTS!
What part of that isn’t clear?