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Moody’s Threatens Downgrade in U.S. Debt Rating if Budget Talks Fail

A downgrade of the U.S. government debt rating will likely be coming if Congress cannot come to a conclusion on current budget talks, according to Moody’s Investors Service.

Moody’s said on Tuesday that the “Aaa” rating of the government debt would probably be cut down a level if Republicans and Democrats don’t reach an agreement before the end of the year. Come January 2, $1.2 trillion in government spending cuts and tax increases will be automatically implemented, something that could lead back to recession.

Republican Speaker of the House John Boehner expressed on Tuesday that he is not confident that a deal can be reached in time to avoid the downgrade. He has put the responsibility on the Senate to push talks forward, and on President Barack Obama to lead the movement. Unfortunately as the campaign season picks up, budget negotiations will likely not be held until after November’s presidential elections.

Last year’s talks over the expansion of the U.S. debt limit led to the downgrade of the government’s bond ratings from “AAA” to “AA+” at the hands of credit rating agency Standard & Poor. Around that same time, Moody’s declared that its outlook on the U.S. debt issues was “negative.” However, in Tuesday’s report, the service said that it would likely wait until the outcome of Congress’s negotiations was clear before changing its rating. Also mentioned was the possibility of another round of negotiation for the country’s debt limit as the government once again approaches the brink.

“Under these circumstances, the government’s rating would likely be placed under review after the debt limit is reached, but several weeks before the exhaustion of the Treasury’s resources,” read Moody’s analyst Steven A. Hess’s report.

Though the U.S. has suffered through downgrades and warnings in the last year, it has been able to borrow with few restrictions when compared to countries in the troubled Eurozone. The news from Moody’s has yet to have a significant impact on stock market trading within the States.

 

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