Moody’s Investors Service said on Wednesday the US government’s “Aaa” rating was stable despite the country’s swelling debt.
The US budget deficit is expected to hit US$1.75 trillion this year, and the government will issue US$2 trillion in new debt in fiscal 2009 to meet its increased borrowing needs. The IMF estimates the US debt to GDP ratio is 61.7 percent, the highest since World War II.
A credit rating of “Aaa” is the highest possible. It means the ratings agency sees very little risk of the government defaulting on its debt.
S&P
Last week Standard & Poor’s, another ratings agency, raised worries that the US could lose its “AAA” rating after it warned Britain was at risk for a downgrade. Both the British government and the US government have had their central banks inject billions of dollars into their economies by buying bank assets.
The warning sent the dollar and US Treasury prices tumbling last week, because a downgrade would increase borrowing costs and hurt the government’s economic stimulus efforts.
FLEXIBILITY
Moody’s said the dollar’s status as a reserve currency played a crucial role in the country’s continuing ability to fund its debts.
“The level of debt is less important than the government’s balance sheet flexibility, which Moody’s believes is still high in the case of the US,” Moody’s said.
However, Moody’s did not completely rule out a downgrade.
Steven Hess, vice president and senior credit officer at Moody’s, said that while the US government’s debt rating was stable, a reassessment of the economy and the government’s debt could put “negative pressure on the rating in the future.”
He said that risks related to Social Security and Medicare could also affect the rating.
“The rating is not guaranteed forever,” Hess said.
REVISIT
Hess said that if the US government’s debt ratios are still increasing significantly even after the recession is over, the agency will have to revisit its rating.
Moody’s has never rated the US government anything below “Aaa” since it began rating the country’s debt in 1917.
The closest Moody’s came to downgrading the US government was in 1996, Hess said, when Moody’s said certain Treasury bonds coming due that year were at risk for a downgrade.
Early that year, Congress refused to raise the government’s debt ceiling, and the Treasury Department said it would not be able to make payments on debt if Congress did not lift it.
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