Outlook remains stable on U.S. AAA rating: Moody's

Reuters via Fidelity.com ^ | May 25, 2010 | Reuters

[mlocher]

NEW YORK (Reuters) - The outlook on the United States' coveted AAA credit rating remains stable, though the government's financial strength is weakening due to its support for the financial system, Moody's Investors Service said on Tuesday.

Structural fundamentals, political stability and favorable economic prospects are supporting the stable outlook, despite rising debt ratios, Moody's said.

The United States' finances have been substantially worsened by the credit crisis, recession, and government spending to address these shocks, Moody's said.

"The ratios of general government debt to gross domestic product and to revenue are deteriorating sharply, and after the crisis they are likely to be higher than the ratios of other Aaa-rated countries," the agency said.

The ratio of debt to revenue has more than doubled over the past three years, reaching well over 400 percent and indicating potential stress on government finances in the future, Moody's said.

The United States, however, is still the world's largest economy, the center of global trade and finance and supported by flexible markets and open trade, Moody's said.

The rating could come under pressure if the upward trend in debt ratios and interest costs continues and measures to stabilize them are not taken, Moody's said.

[mlocher]

It appears that the Finance Reform Bill will be regulating bond rating agencies. If this happens, woe be it to the first agency that drops US's bonds below AAA. (I can just see Waxman or his equivalent calling a congressional sub-committe hearing and demanding the CEOs of the "offending" agencies to appear.)

[Nervous Tick]

>> The ratios of general government debt to gross domestic product and to revenue are deteriorating sharply

The snapshot financial picture at this moment may be more or less okay.

It’s the awful TRAJECTORY we’re on that’s worrisome.

[Nervous Tick]

>> demanding the CEOs of the “offending” agencies to appear

If I had to appear in any hearing in front of Waxman, I’d show up wearing snow-skiis. Otherwise, if he inhaled suddenly, a man could get lost in that nose and never be found.

[optiguy]

October 14, 1929
“Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board.”
– New York Times

[mlocher]

Great find!

A business slowdown in 1929 was going to happen. Let's not forget that after the death of chairman Strong, there was no clear cut leadership within the Federal Reserve. It's bungling incompetance created the slide towards depression, and Roosevelt increased the angle of the slope with poor fiscal policy.

[KarlInOhio]

There is just about no chance that the government will be unable to pay its bonds. The most likely scenario is massive inflation so that the bonds are paid off with crisp, freshly printed million dollar bills - i.e. currency devaluation. However, every other dollar denominated bond will be subject to the same currency risk. Dropping the U.S. government's rating to AA means that AA will be the top rating possible for any city, state or corporation's dollar denominated bonds.

[The Duke]

Why to I think China and our other creditors have their own, separate rating system? (And that it is not so constant with regard to US credit-worthiness?)