Earlier this week, the opposition Republicans blocked a Bill to raise the debt limit by 2 August – currently its debt level is $14.3bn – urging Democratic President Obama to first come to an agreement on spending cuts.
The spat led Moody’s Investors Services to indicate it could soon put the US on review, leading to a possible downgrade unless an agreement on fiscal policy is reached. In April, Standard and Poor’s moved its view of the US triple-A rating from stable to negative.
The US runs a deficit of $1.5trn and reached its debt ceiling last month. The debate has therefore now moved on to now raise the debt limit (the preferred Democrat line) or agree to further spending cuts (the Republican view).
Yesterday, Moody’s said it could tone down its triple-A rating on US government debt even though there was only a “very small but rising risk” of it defaulting raising borrowing costs and slowing any economic growth even further.
The agency said: “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.
