Moody's Warns On USAAA Rating; IMF Piles On

Tyler Durden's picture




 

Moody's has stepped forward with the first warning shot across the bow that:

  • *MOODY'S: MORE MEDIUM TERM ACTIONS MAY BE NEEDED TO SUPPORT Aaa

Has contradicted itself (from September) on the debt-ceiling breach; and warns that while the deal 'mitigates' some fiscal drag, it does not remove it. To wit: the IMF piles on:

  • *IMF SAYS `MORE REMAINS TO BE DONE' ON U.S. PUBLIC FINANCES
  • *IMF SAYS U.S. DEBT CEILING SHOULD BE RAISED `EXPEDITIOUSLY'

Full statements below.

 

Moody's Anticipates Further US Fiscal Action Following "Fiscal Cliff" Deal 

New York, January 02, 2013 -- Moody's Investors Service said that the fiscal package passed by both houses of Congress yesterday is a further step in clarifying the medium-term deficit and debt trajectory of the federal government. It does not, however, provide a basis for a meaningful improvement in the government's debt ratios over the medium term. 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. On the other hand, lack of further deficit reduction measures could affect the rating negatively. Notably, yesterday's package does not address the federal government's statutory debt limit, which was reached on December 31. The need to raise the debt limit may affect the outcome of future budget negotiations.

 

Although the fiscal package raises some revenue through higher tax rates on individuals earning more than $400,000 ($450,000 for joint filers) and through some other smaller measures, the estimated amount of increased revenue over the next decade is far outweighed by the amount of revenue foregone through the extension of lower tax rates for those with incomes below $400,000, the indexation of the alternative minimum tax, and other measures.

 

The Congressional Budget Office (CBO) estimates that the net increase in budget deficits from the fiscal package when compared to its baseline scenario (which assumes taxes on all income levels would increase) is about $4 trillion over the coming decade, excluding higher interest costs on the resultant higher debt. Based on that estimate, a preliminary calculation by Moody's shows that the ratio of government debt to GDP would peak at about 80% in 2014 and then remain in the upper 70 percent range for the remaining years of the coming decade. Stabilization at this level would leave the government less able to deal with future pressures from entitlement spending or from unforeseen shocks. Thus, further measures that bring about a downward debt trajectory over the medium term are likely to be needed to support the Aaa rating.

 

The macroeconomic effects of the package are positive, since it averts the recession that would likely have occurred had personal income taxes gone up for all income levels. However, the increase in the Social Security payroll tax from 4.2% to 6.2% of income that became effective on January 1 will likely be a constraint on growth in coming quarters. Furthermore, expenditure cuts that may be decided in coming months could also affect the rate of GDP growth in the near term. Overall, therefore, the recent package mitigates part of the fiscal drag on the economy associated with the fiscal cliff but does not eliminate it.

 

The statutory debt limit was reached on December 31, and the Treasury indicates that its extraordinary measures may be sufficient to maintain normal expenditure levels for approximately two months. Nonetheless, the debt limit will have to be raised in February or early March. At the same time, the fiscal package passed yesterday delayed the implementation of spending cuts mandated by the Budget Control Act of 2011 for two months. Therefore, it seems likely that new measures addressing the expenditure side of the budget will be negotiated at around the time the debt limit will need to be raised.

 

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. However, the spending measures that result from the negotiations will form part of the medium-term outlook for the budget deficit. Moody's will need to consider these measures in assessing the rating outlook. Further revenue measures may also form part of the negotiations. The debt trajectory resulting from this process is likely to determine whether the Aaa rating is returned to a stable outlook or downgraded to Aa1, as Moody's stated last September.

From IMF:

Mr. Gerry Rice, Director of External Relations at the International Monetary Fund (IMF), issued the following statement today:

 

“We welcome the action by the U.S. Congress to avoid sudden tax increases and spending cuts, including through an extension of unemployment benefits during 2013. In the absence of Congressional action the economic recovery would have been derailed.

 

“However, more remains to be done to put U.S. public finances back on a sustainable path without harming the still fragile recovery. Specifically, a comprehensive plan that ensures both higher revenues and containment of entitlement spending over the medium term should be approved as soon as possible. In addition, it is crucial to raise the debt ceiling expeditiously and remove remaining uncertainties about the spending sequester and expiring appropriation bills.”

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Wed, 01/02/2013 - 16:01 | 3115848 Stoploss
Stoploss's picture

What do we need a debt ceiling for??

 

Fuck it...

Wed, 01/02/2013 - 16:02 | 3115855 The Juggernaut
Wed, 01/02/2013 - 16:11 | 3115909 HoofHearted
HoofHearted's picture

Back in the USS, back in the USS, back in the USSAA (and then USSA+, then USBBB, then, well you get the picture)

Wed, 01/02/2013 - 19:29 | 3116783 Bunga Bunga
Bunga Bunga's picture

Does BB  stand for Bunga Bunga?

Wed, 01/02/2013 - 20:17 | 3116950 TwoShortPlanks
TwoShortPlanks's picture

When the Fed owns all the MBS and Bond paper, they own YOU!

Click-Click!

Wed, 01/02/2013 - 17:47 | 3116215 EscapingProgress
EscapingProgress's picture

Stop the charade already and just downgrade US debt to junk status. As Mr. Greenspan stated the US gov will never default because the Fed can just print more money, but this only means that the US gov is guaranteeing that they will pay back the NOMINAL value of the gov bonds they issue. What about the REAL, inflation adjusted value? No, not the value calculated using the fictitious rate of infation published by the gov. I mean the REAL inflation rate adjustment.

I'll leave you all with the infamous future last words of Uncle Sam to all holders of US dollars and US dollar-denominated assets: "FUCK YOU!"

Wed, 01/02/2013 - 16:02 | 3115859 I think I need ...
I think I need to buy a gun's picture

free market capitalism is the best path to prosperity,,,,larry kudlow

Wed, 01/02/2013 - 16:04 | 3115873 CH1
CH1's picture

free market capitalism

If only it were legal!

Wed, 01/02/2013 - 16:05 | 3115878 whatsinaname
whatsinaname's picture

Yawn !!

Wed, 01/02/2013 - 16:08 | 3115896 Landotfree
Landotfree's picture

Stoploss

To me this is not a credit ratings issue as clearly the US has the ability to pay interest and principle by expansion of the powers it has invested itself.   To me it more a worthiness of the credit being issued item.

Wed, 01/02/2013 - 16:08 | 3115900 FL_Conservative
FL_Conservative's picture

It gives our government something else to "breach" (other than its citizenry) every 18 months or so.

Wed, 01/02/2013 - 16:22 | 3115953 pods
pods's picture

I hereby nominate Buster Hymen for the next Treasury Secretary.

pods

Wed, 01/02/2013 - 16:43 | 3116021 RockyRacoon
RockyRacoon's picture

I was hoping for Seymour Butts... or perhaps Claude Balls... Harry Pitts? 

Mike Hunt already has a cushy Treasury job.

We coons tend to go juvenile at times.

Wed, 01/02/2013 - 16:20 | 3115945 Panafrican Funk...
Panafrican Funktron Robot's picture

The funny part about that 4 trillion number is that it assumes all the sequestration cuts go through.  Which has exactly 0% chance of happening.

We're really talking about continuing to add about 1 trillion to the debt annually.  And this assumes no future recessions.

Wed, 01/02/2013 - 17:47 | 3116344 SilverIsKing
SilverIsKing's picture

Don't forget about unfunded liabilities and when these become due.  Not sure when this begins but how they will fund these obligations will increase the debt much further.

Expect a parabolic rise in the amount of US Govt debt in the coming years.  You won't be disappointed.

The figures being bandied about today are chump change.

Wed, 01/02/2013 - 18:52 | 3116633 agNau
agNau's picture

There's the little issue of a devaluing dollar. As more are created to pay the debt, their value will continue to spiral downwards.
Won't this be FUN!

Wed, 01/02/2013 - 16:26 | 3115968 in4mayshun
in4mayshun's picture

Moody's will very likely be found to be assisting terrorists, and deemed illegal very soon.

Problem solved.

Wed, 01/02/2013 - 17:23 | 3116225 cossack55
cossack55's picture

Any 1st, 2nd or even 3rd tier terrorist group would not find any value in what Moody's has to offer.  Would be fun to see the punkassed Zandy in a burnoose tho.

Wed, 01/02/2013 - 16:00 | 3115849 tooriskytoinvest
tooriskytoinvest's picture

Fiscal-Cliff Showdown Postponed to March. Republicans Banding Together to Unseat Boehner

http://investmentwatchblog.com/fiscal-cliff-showdown-postponed-to-march-republicans-banding-together-to-unseat-boehner/

 

Wed, 01/02/2013 - 16:03 | 3115862 pods
pods's picture

This is the equivalent of telling a 500 lb guy that he might want to try the salad bar.

pods

Wed, 01/02/2013 - 16:07 | 3115889 fonzannoon
fonzannoon's picture

Or better yet telling the 500lb guy that he needs to change the definition of fat to 600lbs in a few months or he will have to go to the salad bar.

Wed, 01/02/2013 - 16:03 | 3115863 GMadScientist
GMadScientist's picture

DoJ warns Moody's again.

Cross-check. Your move.

Wed, 01/02/2013 - 16:04 | 3115867 Killuminati
Killuminati's picture

In Illuminati we trust. 

Not.

Wed, 01/02/2013 - 16:05 | 3115874 Critical Path
Critical Path's picture

A fleet of black SUVs just rolled up to Moodys headquarters.  On second thought, all is well.

Wed, 01/02/2013 - 16:08 | 3115876 Cognitive Dissonance
Cognitive Dissonance's picture

It matters not of a (further) US ratings decline, only that the greater fool continues to believe (or for that matter just continues to play in the game).

In a confidence game, faith and belief is the only currency that counts.

Wed, 01/02/2013 - 17:05 | 3116155 Manthong
Manthong's picture

Yes CD, but when the confidence game morphs into the protection racket, the currency changes from belief to fear.

Wed, 01/02/2013 - 17:24 | 3116233 Cognitive Dissonance
Cognitive Dissonance's picture

Whatever it takes to "git er done".

Faith and belief is rarely truly blind, just all consuming. One can have total faith and belief in the local mafia protection and enforcement racket while still fearing it. Many religions still use fear based 'compliance' methods even to this day. They just pretty it up a bit more so it ain't so obvious. 

Wed, 01/02/2013 - 17:24 | 3116234 cossack55
cossack55's picture

Fear IS a wonderful short-term motivator.

Wed, 01/02/2013 - 16:05 | 3115880 fonzannoon
fonzannoon's picture

please just raise the fuckin debt ceiling already, we don't give a shit about the spending cuts.

 - Moodies

Wed, 01/02/2013 - 16:07 | 3115891 vote_libertaria...
vote_libertarian_party's picture

I double dog dare yu'.

Wed, 01/02/2013 - 16:09 | 3115898 Dr. Engali
Dr. Engali's picture

Could we please just get rid of the silly idea that there is a such thing as a debt ceiling? 

Wed, 01/02/2013 - 16:20 | 3115944 Cognitive Dissonance
Cognitive Dissonance's picture

A debt ceiling is like locks on our front doors. They keep the honest people honest while allowing the thieves to feast on the lack of competition.

Wed, 01/02/2013 - 16:08 | 3115899 ptoemmes
ptoemmes's picture

Expeditiously might be code for remove the limit.

Wed, 01/02/2013 - 16:09 | 3115903 Bill D. Cat
Bill D. Cat's picture

I'm pretty sure the IMF meant exponentially .

Wed, 01/02/2013 - 16:10 | 3115906 Ineverslice
Ineverslice's picture

 

the Market rejoices.

Wed, 01/02/2013 - 16:12 | 3115912 TerminalDebt
TerminalDebt's picture

Trillion dollar coins are so tomorrow

Wed, 01/02/2013 - 16:13 | 3115915 Boilermaker
Boilermaker's picture

Honestly...so what?

Ben controls the market, literally, and is gobbling up all the treasuries AND is willingly devaluing the currency AND is already at zero percent interest.

Why would he even give a shit?

Wed, 01/02/2013 - 16:16 | 3115932 TerminalDebt
TerminalDebt's picture

Nobody does, but the politicians pretend they are relevant so at least let the ratings agencies pretend they are relevant too.

Wed, 01/02/2013 - 16:17 | 3115934 fonzannoon
fonzannoon's picture

Moody's: "Bernak This is Moody's....listen we are putting out a release that we have to put the US on review"

Bernak: HAHAHAHAHAHAHA

Moody's: "I know right!!!!!!!"

Wed, 01/02/2013 - 16:22 | 3115954 Boilermaker
Boilermaker's picture

By Moody's I assume you mean Uncle Warren, himself. 

Oh looky...there goes the RUT even higher again.

Buy stawks!  hurry!  You don't want to miss out do you?  Do you???

Wed, 01/02/2013 - 16:23 | 3115957 Panafrican Funk...
Panafrican Funktron Robot's picture

Right, apparently some people missed the memo that "unsterilized" and "unlimited" means "aggressive currency devaluation".  Rising tide lifts all boats, even if that tide is liquified feces.  

Wed, 01/02/2013 - 16:13 | 3115916 magpie
magpie's picture

BS, because at least the UK and Germany would have to be downgraded & France at least twice before

Wed, 01/02/2013 - 16:13 | 3115917 RacerX
RacerX's picture

Madness? This is not madness.

 

This is USA-AAAAAAAaaaaa

Wed, 01/02/2013 - 16:14 | 3115919 Banksters
Banksters's picture

Does this mean the 10 year drops down to new historical lows?

Wed, 01/02/2013 - 16:15 | 3115922 krugergate
krugergate's picture

Cmon China - give this ponzi scheme the death blow it deserves. Got silver?

Wed, 01/02/2013 - 16:16 | 3115927 muppet_master
muppet_master's picture

the choreographer in THIEF

odummernomics TOLD BOTH moody's and the IMF to say [to the Republicans]

write odummer a blank check or else default...we don't want "drama"..just call the bank tell them to raise the debt limit...so that min. payments can be made..and you will NEVER have to pay it back....bc the bondholders "LOVE ME"..says odummer...LOL !!

i ain't buying your stinky porkulosus anal talk odummernomics...i know that HIGH DEBT = toxic !!

i'm smarter than a 5th grader !!! really !!!

Wed, 01/02/2013 - 16:17 | 3115933 azzhatter
azzhatter's picture

Moody's CEO found dead of suicide. Shot himself in the back 17 times. Tragic.

Wed, 01/02/2013 - 16:23 | 3115958 Boilermaker
Boilermaker's picture

You mean like the Freddie Mac CFO a few year's ago? 

Eerie.

Wed, 01/02/2013 - 16:17 | 3115936 TrustWho
TrustWho's picture

America, do you feel like a 3rd world country yet?

IMF tells third world countries how to manage their finances. Funny, America is Lagarde's bitch!

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