Moody’s Sounds the Alarm
Published in Expert
(Russia) on 3 June 2011
by Anna Koroleva (link to original)
(Russia) on 3 June 2011
by Anna Koroleva (link to original)
Translated from
by Lucile McKay.
Edited by Sam Carter.
The international rating agency Moody's Investors Service reported that it may strip the U.S. of the highest credit rating of AAA if the nation's politicians are not able to agree on increasing the limit of the allowable level of national debt. As Reuters writes in reference to the agency's announcement, American politicians must come to an agreement no later than the middle of July.
In January of this year, the U.S. Treasury reported that the national debt had reached a historic maximum of $14 trillion. According to forecasts, it will reach approximately $19.6 trillion by the year 2015.
The U.S. government cannot spend more than the upper limit of the total sum of its possible debt, which Congress established. At the present time, the ceiling is $14.3 trillion. But this does not stop senators from adopting laws that raise governmental spending and reduce taxes, which by default leads to the federal government sinking deeper into debt. The government already raised the issue of increasing this limit, but politicians could not come to an agreement.
This inability to agree has an extremely negative influence on the economic situation in the country as well as on politicians' images in the U.S. itself and in the eyes of investors worldwide. Thus, S&P has already lowered the forecast for the country's rating, warning that it will strip America of the highest rating if its politicians are not able to resolve the national debt problem.
Immediately following Moody's warning, Secretary of the Treasury Timothy Geithner, attempting to convince Congress to increase its authority to receive loans on the open market, left for Capitol Hill in order to discuss the issue with U.S. legislators.
"I'm confident two things are going to happen this summer," Geithner told journalists after the meeting. "One is we're going to avoid a default crisis, and we're going to reach agreement on our long term fiscal plan."
Moody's warning increases the pressure on U.S. President Barack Obama and Speaker of the House of Representatives John Boehner, the head of the Republican Party in the U.S. Congress. They must reach agreement with each other as soon as possible; sooner or later a new financial crisis is waiting for the country.
Mary Miller, a high-ranking official in the U.S. Treasury Department, said that Moody's announcement emphasized the necessity for Congress to act quickly in order to convince people that the United States could fulfill all of its debt obligations.
Incidentally, Andrei Stoyanov, head of the research group UK FG BKC, believes that the story surrounding the U.S. national debt is strongly exaggerated. "The story of the U.S. default and the limit of the national debt is an excellent informative tale of terror for those who are not very aware of elementary economic principles. That is the majority of people in the information field," says the analyst. "But what default can we talk about regarding the country whose obligatory debts are denominated in local currency, which is printed by that very country? If the U.S. begins to print dollars to pay off its own debts, this is fraught with extremely negative consequences for the global economy. And this is very well understood in the U.S. Congress."
As has happened more than once in history, Stoyanov believes, not one of the legislative parties (neither the Republicans nor the Democrats) will take responsibility for the fact that its decision could lead to a serious slowdown of the global and American economies and turbulence on the markets. Everyone remembers how the TARP program was adopted at the peak of the crisis in 2008 and how many discussions there were surrounding it. (In fact, it was adopted only the second time.) But upon adopting it, there was a foundation for the country's exit out of the difficult postwar crisis period.
The situation with the national debt ceiling is fairly trivial. It has come up more than 70 times in U.S. history. And without a doubt it will come up again. It is another matter that the U.S. budgetary policy demands serious balancing, but this is an issue of several years or even an entire decade. It is simply impossible to resolve it at the whims of congressmen.
In January of this year, the U.S. Treasury reported that the national debt had reached a historic maximum of $14 trillion. According to forecasts, it will reach approximately $19.6 trillion by the year 2015.
The U.S. government cannot spend more than the upper limit of the total sum of its possible debt, which Congress established. At the present time, the ceiling is $14.3 trillion. But this does not stop senators from adopting laws that raise governmental spending and reduce taxes, which by default leads to the federal government sinking deeper into debt. The government already raised the issue of increasing this limit, but politicians could not come to an agreement.
This inability to agree has an extremely negative influence on the economic situation in the country as well as on politicians' images in the U.S. itself and in the eyes of investors worldwide. Thus, S&P has already lowered the forecast for the country's rating, warning that it will strip America of the highest rating if its politicians are not able to resolve the national debt problem.
Immediately following Moody's warning, Secretary of the Treasury Timothy Geithner, attempting to convince Congress to increase its authority to receive loans on the open market, left for Capitol Hill in order to discuss the issue with U.S. legislators.
"I'm confident two things are going to happen this summer," Geithner told journalists after the meeting. "One is we're going to avoid a default crisis, and we're going to reach agreement on our long term fiscal plan."
Moody's warning increases the pressure on U.S. President Barack Obama and Speaker of the House of Representatives John Boehner, the head of the Republican Party in the U.S. Congress. They must reach agreement with each other as soon as possible; sooner or later a new financial crisis is waiting for the country.
Mary Miller, a high-ranking official in the U.S. Treasury Department, said that Moody's announcement emphasized the necessity for Congress to act quickly in order to convince people that the United States could fulfill all of its debt obligations.
Incidentally, Andrei Stoyanov, head of the research group UK FG BKC, believes that the story surrounding the U.S. national debt is strongly exaggerated. "The story of the U.S. default and the limit of the national debt is an excellent informative tale of terror for those who are not very aware of elementary economic principles. That is the majority of people in the information field," says the analyst. "But what default can we talk about regarding the country whose obligatory debts are denominated in local currency, which is printed by that very country? If the U.S. begins to print dollars to pay off its own debts, this is fraught with extremely negative consequences for the global economy. And this is very well understood in the U.S. Congress."
As has happened more than once in history, Stoyanov believes, not one of the legislative parties (neither the Republicans nor the Democrats) will take responsibility for the fact that its decision could lead to a serious slowdown of the global and American economies and turbulence on the markets. Everyone remembers how the TARP program was adopted at the peak of the crisis in 2008 and how many discussions there were surrounding it. (In fact, it was adopted only the second time.) But upon adopting it, there was a foundation for the country's exit out of the difficult postwar crisis period.
The situation with the national debt ceiling is fairly trivial. It has come up more than 70 times in U.S. history. And without a doubt it will come up again. It is another matter that the U.S. budgetary policy demands serious balancing, but this is an issue of several years or even an entire decade. It is simply impossible to resolve it at the whims of congressmen.