Moody’s Mulls Downgrading U.S. Debt

The U.S. isn’t Greece. Yet.


Moody’s is no longer so sure about the quality of Uncle Sam’s debt. Reports the Christian Science Monitor:

The US needs to make significant government spending cuts or else risk losing its gold‐​plated credit rating that has made extensive borrowing so affordable, Moody’s Investor Service said late Monday.


The announcement was a sobering warning that the country’s burgeoning debt has weakened the country’s economic standing, and that US Treasury Bonds, traditionally a bullet‐​proof investment, could lose their sterling Aaa‐​rating if Washington cannot control its federal debt.


If Moody’s were to downgrade the country’s rating, the impact could be severe. It would signal to lenders worldwide that the US is no longer one of the safest places to invest money.


That, in turn, would threaten the country’s ability to borrow freely and extensively from other countries on favorable terms. Investors would likely demand a higher interest rate to finance US debt, which would push federal debt higher still.


“There’s a profound effect in this announcement,” says Max Fraad Wolff, a professor of economics at New School University in New York. “The US has always been the gold standard … and this begins to signal a fall or weakness in US global economic position. That’s a bit like a sea change.”

Obviously we are long overdue for some fiscal responsibility in Washington. And that means cutting spending across the board. Lawmakers might start by considering what programs are authorized by the Constitution – and the far larger number which represent unconstitutional political power grabs.