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June 03, 2011 at 06:31 AM
As Congress and the Obama Administration continue to spar over how to reduce the long-term debt of the country, and whether to raise the debt ceiling, a major credit rating agency has warned that it may downgrade the credit of the United States of America.
Moody’s warned Thursday that “if there is no progress on increasing the statutory debt limit in coming weeks, it expects to place the U.S. government's rating under review for possible downgrade, due to the very small but rising risk of a short-lived default.”
Moody’s continued in its warning: “If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating.”
Though Moody’s said in its report that it, “anticipates that a default would be cured quickly,” the rating agency left open the door to a potential downgrade of the U.S. to “a rating in the Aa range.”
The Potential Repercussions
While those who argue against raising the U.S. debt limit cite a desire to cut spending now as a way to cut the long-term U.S. deficit, many economists and Administration officials argue that even a hint of the threat of default by the world’s go-to haven in any crisis—U.S. sovereign debt—could have serious consequences for the fiscal health of the nation.
