Moody’s warns of U.S. credit rating cut if debt problems continue
WASHINGTON -- Moody’s Investor Services warned Tuesday that it likely would downgrade the U.S. AAA credit rating if government officials don’t deal with the nation’s debt problems.
The credit rating firm said negotiations between Congress and the White House on the nation’s 2013 budget, and whether they will reduce the high ratio of debt to gross domestic product, will be key to maintaining its top credit 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,” Moody’s said.
“If those negotiations fail to produce such policies, however, Moody’s would expect to lower the rating, probably to Aa1,” the company said.
That rating -- a notch below AAA -- would be the equivalent of the rating that Standard & Poor’s put in place for the U.S. in 2011 when it downgraded the nation’s top-level rating following the divisive debate over raising the debt ceiling.
It was the first credit downgrade in U.S. history, and led to a huge stock market plunge.
Moody’s and the other leading credit rating company, Fitch Ratings, kept the U.S. at AAA level after Congress and the White House agreed to an increase in the debt ceiling. But Moody’s changed its outlook to negative, meaning there was a risk of a downgrade in the future.
Moody’s said it would keep the AAA rating with a negative outlook until budget negotiations are completed.
The U.S. national debt topped $16 trillion for the first time on Aug. 31 amid lower revenues caused by the Great Recession and increased government spending to try to boost the economy. That brought the ratio of debt to GDP to more than 100%.
The Congressional Budget Office estimated last month the budget deficit for the 2012 fiscal year, which ends Sept. 30, will be about $1.1 trillion.
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