Moodys warn US on AAA rating

Discussion in 'Wall St. News' started by Dogfish, Jul 29, 2010.

  1. Dogfish


    (Dow Jones)--The U.S. government needs to articulate clearly a credible plan to tackle its bulging debt profile in order to keep its triple-A credit rating, Moody's Investors Service's lead sovereign analyst for the country said Thursday.

    In contrast to the U.S., the credit health of Asian countries remains broadly positive and their resilience has been highlighted by Europe's debt crisis, which looks to have peaked, Steve Hess, senior credit officer in the sovereign risk group at Moody's told Dow Jones Newswires in an interview.

    Hess is the rating's agency's top sovereign analyst for the U.S., East Asia and Australasia.

    The comments indicate Moody's views on the U.S. have changed little since the ratings agency warned in March on the need for action, and hints a sense of urgency is required from the U.S. government to deal with its rising borrowing needs and interest costs.

    Hess said if U.S. government budget projections for debt as a percentage of national output and interest payments as a percentage of revenue are realized in coming years, the Aaa rating of the world's largest economy will come under scrutiny.

    "If the projections materialize, then at some point we would have to at least think about whether this is Aaa," Hess said, adding such a move would not necessarily lead to an automatic downgrade--and ultimately Moody's expects the U.S. to take the required steps. The U.S rating remains on a stable outlook.

    He said the U.S. appears to have "no plan" to deal with its fiscal situation and much will depend on the domestic political reaction to recommendations due by December from President Barack Obama's commission on fiscal responsibility.

    Measures which could be proposed include cuts to social security and medicare and the possible introduction of new taxes, Hess said.

    "The question then is can they get the votes in Congress to implement any of them, so there is political uncertainty over the ability of the government to actually stabilize the debt levels or reverse the debt trajectory," he said.

    He cited examples such as New Zealand, Sweden, Ireland and Canada which in previous decades succeeded in pulling down their debt levels.

    "Can the United States do it is the big question right now and we are not sure either way. We will wait and see what happens in the next couple of years on this front."

    For Japan, the most heavily indebted developed economy, mitigating factors such as a current account surplus and a large internal savings pool mean Moody's is comfortable with its current rating on that country, but if political upheaval counters efforts to lower the government's borrowing needs Japan too could run the risk of a rating review at some stage, Hess said.

    "Over time that's something which could cause us to consider the rating," Hess said.

    On the threats to Asia's economic outlook, Moody's doesn't expect a major slowdown in China, though if one does occur on the back of a real estate slow down or surge in bad debts, the Chinese government is well equipped to deal with it.

    "We think that the risk of a severe Chinese slowdown is not too great," Hess said.

    The spillover effect from Europe's financial crisis into Asia has been a positive one, helping to illustrate the relatively strong fiscal positions in the region where bank and government balance sheets remain sound, Hess said.

    "What's going on in Europe now puts (Asia sovereigns) in a relatively good position," he said.

    For individual government credits in Asia, there's some possibility Indonesia could be upgraded in the future, while the new Philippines government will have to prove its metal in its plans to raise revenues and cut spending.

    "If they succeed in really improving their fiscal position, certainly that would be a positive from a ratings point of view," Hess said of the new Philippines government.

    South Korea could move into the Aa rating range, though the threat of war and possible aid costs to North Korea are acting as counterweights.

    "How high (Korea's rating) might go is still open to question, but you can see we are beginning to think some factors affecting the rating are moving in a positive direction," Hess said.

    For Australia, which enjoys one of the lowest debt profiles in the developed world, there is little threat to its gilt edged credit Aaa rating although the country is vulnerable to external vulnerabilities due to its reliance on offshore funding, Hess said.

    Plans by the Australia government to return to budget surplus by fiscal year beginning July 1, 2012 look achievable and its economic forecasts are reasonable, Hess said.

    Likewise, New Zealand's Aaa credit rating is in firm shape, notwithstanding the country also has a large dependence on foreign funding, Hess said.

    -By Enda Curran, Dow Jones Newswires; 61-2-8272-4687;
  2. It'll never happen.
  3. what would happen if US's rating is lowered?

    Probably nothing
  4. Moody's would be probed by the SEC, IRS, DOJ, and FBI
  5. are u serious?Moodys offices will be raided and closed down, their workers and families can be made to "disappear".
  6. Cuts to Medicare and Social Security are nothing more than a backdoor default on sovereign debt.

    The American people should not accept this, unless it is also accompanied by default on foreign-held debt.