Monday, August 08, 2011

Moody's Maintains Top Rating, Cites "real policies," "positive steps" in Budget and Deficit Reduction

According to Bloomberg, Moody's Investor Service has affirmed its Aaa rating of US sovereign debt and given the following explanation:
The U.S. today retained its Aaa ranking with a negative outlook because the dollar’s status as the main reserve currency allows it to support higher debt levels than other countries and lawmakers last week took a “positive step” toward addressing the nation’s record deficits, Steven Hess, the senior credit officer at Moody’s in New York, said in a telephone interview.
Moody's is satisfied that congress, despite its refusal to pass a bill containing real expense reductions, has its heart in the right place. We should all have creditors so congenial:
“What we’ve said over the last few months is that we now see at least both parties having the same goal of deficit and debt reduction over the long term, even though more needs to be done,” Hess said.
Despite one economic indicator after another signaling lower GDP growth, employment, and tax revenue; despite congress struggling to finally pass a bill that is remarkable for the complete absence of any real budget and deficit reduction, Moody's is satisfied that US creditworthiness deserves its penultimate score; as good as it has ever been, and as good as it will ever be. Hess continues:
“More important to us than how contentious the process is, does it produce results? What we’re looking at is actual policies as opposed to the political debate.”
So, despite the fact that congress failed to produce policy which would improve the US's ability to service its skyrocketing debt, Moody's, which "is looking at ... actual policies" when assigning its highest rating to the distressed credits of the US, has somehow seen one.

In Moody's world, Baseline Budgeting, in which a smaller than expected increase in projected expenses is considered an expense cut, qualifies as an "actual policy" for managing the US 's multi-trillion dollar budget deficits; growing the deficit at a slower rate than projected is a "positive step" deserving of the highest credit rating.

Moody's is apparently of a mind with former Fed Chairman Alan Greenspan, who remarked recently that a US default on its debt is impossible because "we can always print money." To paraphrase Howard Dean, "what are they smoking?"


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