Moody's Puts Government on Notice over Debt Ceiling
Here's some lovely Thursday afternoon news: The credit rating agency Moody's has pre-warned the United States about the possibility of debt default later this year, saying that it will downgrade ratings on America's public debt — the safest investment in the world — from AAA to AA should an agreement not be reached.
10-year Treasury yields only went up a smidgen from their already insanely low figures after the announcement, meaning the warning wasn't big news for investors. But it should shut up those who say a debt default wouldn't be so bad after all.
On the other hand, Steven Hess, the senior official at Moody's who delivered the warning, made it pretty clear that they and "the markets" expect a significant long-term deficit reduction deal to coincide with any hike of the debt ceiling now, thanks to the months of annoying political grandstanding in Washington:
"The negotiations now on deficit reduction over the medium term are a significant opportunity to actually do something on that front. Although fundamentally, the debt limit question is separate from long-term deficit reduction, they seem to be linked at this point in Washington."
"The chances of them coming to an agreement, we think, are much reduced if this opportunity goes by and nothing happens."
"Even though we would maintain the Aaa rating if there was no missed payment and the debt limit were raised, if the negotiations came to nothing or didn't have a significant deficit reduction that was credible over the longer term, we would probably put a negative outlook on the rating."
Focus on that first paragraph: This would be a good opportunity to do something about medium-term deficits — meaning, reducing over the next ten years the significant amount of debt we've accrued — but since Washington is talking about long-term deficit reduction anyway — meaning, Rep. Paul Ryan babbling about ending Medicare — then the expectations are now set for Washington to make those long-term solutions.
The next couple of months will be terrifying and could fundamentally change the country forever. Anyway, did someone say something about Anthony Weiner's cock on Twitter?
