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US Triple A Rating in Jeopardy

4 February 2010 - News - Editor

Moody's Investors Service has expressed concern that the Triple A (Aaa) Sovereign credit rating currently enjoyed by the United States, may have to be downgraded, unless the country's economic growth performs better than expected in the near term, with a tougher stance being taken to tackle the budget deficit. The senior credit officer at Moody's noted that the budget outlook presented by the Obama administration this week revealed that the projected deficits failed to stabilize debt levels in relation to GDP. This announcement by Moody’s on Wednesday served to confirm that the growing concern of investors over the US deficit is not unfounded, and the country is facing a pattern of debt growth that shows no obvious sign of letting up.

A similar warning was issued by Moody's to the UK in mid-January, with the emphasis being placed on the vital role of a budget plan to prevent the loss of its high-grade debt status. In the case of the US though, Moody's warning was somewhat unexpected, as it was just six weeks ago that they had announced the US debt rating is likely to remain unchanged due to the outlook being stable. So, one may wonder what’s changed.

Senior credit officer in the sovereign risk division of Moody’s, Steven Hess, noted that economic growth is paramount when assessing ratings of this caliber, and although the Obama administration’s budget for 2011 and financial projections reflect strong growth, it is anticipated that actually productivity will be lower. It is also more than likely that US economic recovery will continue to be hampered by rising consumer debt levels, which are severely curtailing consumer spending – a driving force behind economic recovery.

New York-based Moody’s Investors Service credit ratings are highly regarded in the market place, with many an investment decision being influenced by the rating. But Moody’s success has not been without controversy, and long-time stock market players tend to take its assessment of credit worthiness as only a small factor, and certainly not the sole factor, in stock market investing decisions. There have been accusations of abusive business practices and market manipulation leveled against Moody’s, nevertheless, whether there is some truth in these criticisms or not, a favorable Moody’s credit rating remains a barometer of success, or failure.

 


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