At least one major bond-rating agency is keeping close tabs on the activities of the incoming Congress, with an eye toward possibly downgrading the nation’s credit — again.
One of the 112th Congress’s final items of business involved hurriedly passing legislation to avoid an artificial, self-imposed “fiscal cliff.” Both the Senate and the House approved it in the wee hours, and President Obama reportedly signed it by autopen, since he was too determined to continue his vacation to wait around for a hard copy to sign it the normal way.
Now that that silliness is over, Moody’s Investors Service wants to see Congress tackle America’s true fiscal cliff — the escalating national debt and the upcoming debt ceiling.
“The rating agency expects that further fiscal measures are likely to be taken in coming months that would result in lower future budget deficits, which are necessary if the negative outlook on the government’s bond rating is to be returned to stable,” Steven Hess, a Moody’s senior vice president, told Politico. ”Although Moody’s believes that the debt limit will eventually be raised and that the risk of default on Treasury bonds is extremely low, this confluence of events adds uncertainty to the outcome of negotiations.”
In the last 17 months, the United States has experienced three credit downgrades.
On Aug. 5, 2011, for the first time in U.S. history, Standard & Poor’s lowered its rating of America’s credit due, in part, to the nation’s rising debt burden. Two more weren’t long in coming.
On April 5 of this year, Egan-Jones lowered the U.S. credit rating due to the country’s lack of progress in dealing with the national debt. Then, five months later, Egan-Jones lowered it again, this time because of the Federal Reserve’s attempts to stimulate the economy through “quantitative easing” — a polite way of saying we’re printing money with nothing to back it up.
If Congress makes no real progress tackling fiscal policy, Moody’s could be the third rating agency to lower the U.S. credit rating. Each time that happens, interest rates go up.
As it stands, taxpayers spend $220 billion per year on the national debt’s interest — far more than on education or food stamps, according to U.S. News & World Report.
Read more at Politico.