US's triple-A credit rating 'under threat'

Financial Times ^ | 1/11/08 | Francesco Guerrera

[xtinct]

The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody's, the credit rating agency, said yesterday.

The warning over the future of the triple-A rating - granted to US government debt since it was first assessed in 1917 - reflects growing concerns over the country's ability to retain its financial and economic supremacy.

It could also put further pressure on candidates from both the Republican and Democratic parties to sharpen their focus on healthcare and pensions in the run-up to November's presidential election.

Most analysts expect future administrations to deal with the costs of healthcare and social security and there is no reflection of any long-term concern about the US's financial health in the value of its debt.

But Moody's warning comes at a time when US confidence in its economic prowess has been challenged by the rising threat of a recession, a weak dollar and the credit crunch.

In its annual report on the US, Moody's signalled increased concern that rapid rises in Medicare and Medicaid - the government-funded healthcare programmes for the old and the poor - would "cause major fiscal pressures" in years to come.

[xtinct]

Time to kick the illegal aliens to the curb by cutting off their welfare... especially the ones I know of in Boston who are working under the table and getting free housing, welfare, health benefits, furniture, utilities, and some up here even say the late model cars in the housing projects are paid for with our dime....

[mek1959]

Not a big fan of FT, that said, what they write is obvious. If we don’t get federal entitlement spending under control, NOW, we’re headed for deep waters. Better start hiding your wallet!

[HD1200]

Well. That is that. Looks like we roll health care into a Government program, stop segregating Social Security deductions on checks and just roll it into income tax.

Then the Financial Times can just complain that America has to raise taxes to pay for Government programs and all is fine.

[pnh102]

AAA credit rating?

What kind of ratings agency would give any entity in the hole $10 trillion that kind of rating?

[Dutchguy]

http://www.usatoday.com/news/washington/2007-05-28-federal-budget_N.htm

BALANCE DUE
The cost per U.S. household of unfunded promises made by federal, state and local government:
Medicare $255,280
Social Security $144,251
Federal debt $43,380
Military benefits $25,863
State and local debt $17,537
Federal civil- servant benefits $14,374
State and local retiree benefits $13,114
Other federal obligations $2,548
Total $516,348

If I’d run my business like that...

[Moonman62]

The other way to solve this problem is to let the economy grow at its full potential, but very few people ever seem to think of that.

[Mr. Jeeves]

What kind of ratings agency would give any entity in the hole $10 trillion that kind of rating?

Well, the same one that gave that kind of rating to all the CDO paper Wall Street wanted to push: Moody's. ;)

[pfflier]

What kind of ratings agency would give any entity in the hole $10 trillion that kind of rating?

Someone who realizes that this is still the stongest and most robust economy in the history of the world. This is the economy that sets the standards for all other currencies. Yes we have our ups and downs but Euros and Yen and Rubles do, and will too.

The only time we are in trouble is when we give up on ourselves like the handwringing carter years.

[Slapshot68]

“It could also put further pressure on candidates from both the Republican and Democratic parties to sharpen their focus on healthcare and pensions in the run-up to November’s presidential election.”

Yup...what a great way to improve your rating...by lumping a behemoth spending program such as gov’t run healthcare onto the massive debt we have now.

[Recovering_Democrat]

Oh, please. Moody is going to downgrade the American government? That is a laugh.

[edcoil]

REMEMBER ROME

Those who forget the past, tend to repeat it.

[Alberta's Child]

The basic premise of this article is silly. The U.S. government ALWAYS has a top-noth triple-A credit rating here in the U.S., since it can provide guarantees on its bonds that nobody else can (i.e., it has the power to tax).

On the other hand, the U.S. hasn't had a top-notch triple-A credit rating to outside investors in years. The steep decline of the U.S. dollar against nearly every major foreign currency in recent years is the equivalent of a "downgrade in bond rating."

[Sandreckoner]

Ah. yes, the old “if a COMPANY was run that way” cannard, foisted by politicians of a particular ilk, doomsaying authors, gold peddlers and people who just don’t have a clue.

[pnh102]

Someone who realizes that this is still the stongest and most robust economy in the history of the world.

True, but the economy isn't going and borrowing $10 trillion. The US government is borrowing this money.

[Sherman Logan]

Article behind a firewall.

I suspect it doesn’t mention that the problems involving unsustainable benefit packages for an aging population are MUCH worse in almost every European country, as in two to four times worse. If I remember correctly, Greece in 2025 will be paying out over 25% of GDP in pensions and similar support payments to non-working people.

The entire US federal budget is less than 25%.

[Alberta's Child]

The Carter years were not nearly the problem everyone seems to think they were. In fact, for all of Carter’s flaws (and there were many of them), the U.S. economy is one area where his administration really does get a bum rap. The economic malaise this country experienced during the Carter years was basically the price we paid for the folly and abject idiocy of the Johnson and Nixon administrations — under which this country deluded itself into thinking we could wage a major military campaign overseas while at the same time absorbing a massive increase in Federal domestic spending.

[xtinct]

This morning, WRKO 680 a.m., Tom Finneran, host...

Caller just reported that the powers that be in MA are cutting off mental health care to indigent American citizens BUT illegal aliens will still be covered under MassHealth.

[Mase]

On the other hand, the U.S. hasn't had a top-notch triple-A credit rating to outside investors in years. The steep decline of the U.S. dollar against nearly every major foreign currency in recent years is the equivalent of a "downgrade in bond rating."

If there is a downgrade in the government's bond rating, and outside investors don't hold the fedgov's debt in high regard, who is buying all those T-bills yielding just 3.8%?

[aroundabout]

AAA credit rating?

What kind of ratings agency would give any entity in the hole $10 trillion that kind of rating?

Credit rating is based on ability to repay debt and past record in doing so. Our debt as a % of GDP is at a historical low of about 1.6%. America has never come close to defaulting on any debt obligations I am aware of and it remains and IMO will remain for the foreseeable future the currency of last resort for the worlds economies.

One analogy of our debt currently is to imagine someone earning $1,000,000 annually and having debt payments of about %16,000 over that same period of time.

[Alberta's Child]

If there is a downgrade in the government's bond rating, and outside investors don't hold the fedgov's debt in high regard, who is buying all those T-bills yielding just 3.8%?

1. Foreign trading partners who get paid in U.S. dollars and need to do something productive with them (i.e., they can't eat dollars).

2. People who are buying them at a large discount (e.g., European investors whose currency has increased in value against the U.S. dollar by 40% or more in recent years).