Moody's Threatens U.S. Credit Rating


Back in April, Standard & Poor’s threatened to reduce America’s top-shelf credit rating.  Now another investment agency, Moody’s, has issued a similar warning.  In fact, Moody’s is more urgent.  S&P spoke of a one-in-three chance that our credit rating would take a hit within the next two years.  Moody’s is talking about downgrading our AAA credit rating within the next few weeks.

There is also a difference in the stated reasons both agencies gave for issuing their warnings.  S&P was explicitly worried about our mounting national debt, while Moody’s is worried that we won’t make it bigger.

More specifically, Moody’s is afraid that if the national debt ceiling is not raised soon, there is a “very small but rising risk” that the United States will begin defaulting on its debts.  If that happened, it would be due to the willing and specific choices of President Barack Obama and his Administration.  There is absolutely no reason a single U.S. debt should be jeopardized when we reach the current debt-ceiling doomsday date in August.  The government would need to cut $20 billion or so in spending per month if can’t borrow any more money.  The federal government spends $300 billion per month.  There are lots of places we can find $20 billion to cut, without touching debt service, or any other essential function of this bloated government.

This is, nevertheless, another important warning shot fired by the credit market.  Standard & Poor’s used a rifle, while Moody’s used a pistol.  Whatever the actual consequences of a debt-ceiling crash might be, it’s not surprising that investors would want politicians to get serious about dealing with it.  Make no mistake: that means the Democrat Party needs to grow up, and fast. 

Their infancy ended when the House decisively voted down President Obama’s irresponsible demand for more debt without any conditions attached.  Now we’ve just got to pull them through their teenage years.

“Today’s announcement from Moody’s simply reinforces the position already announced by S&P and a clear bipartisan majority in the House of Representatives,” Fox News quotes Rep. Dave Camp (R-MI),  chairman of the House Ways and Means Committee. “House Republicans have put forward bold solutions to deal with this crisis and it is time for the president to come to the table and join us in talking about specific policy solutions.”

There is only one way to address both the concerns of Standard & Poor’s and Moody’s: dramatic spending cuts, a firm spending cap, and a balanced budget.  I personally think all of that can be done without raising the debt ceiling – in fact, done properly, it would make raising the debt ceiling in August unnecessary. 

Raising the debt ceiling without those reforms in place means we would dodge the Moody’s pistol shot and run smack into the S&P rifle bullet, which was fired to warn us of much more serious, long-term danger.  The reforms in question would be the most dramatic steps the U.S. government has taken in our lifetime, won by Republicans in the greatest political battle of modern history.  Dodging bullets is hard.