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:


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:


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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falak pema's picture

chastity belt that is more tough than the Iron curtain...

In DSK days it was the other way round; he did the baton rap, rap, rap in honey trap. 

Jack Sheet's picture on your (La) guard...

Jack Sheet's picture

.........with the wrong end of a pineapple.....

yogibear's picture

Turbo Timmy, Obama and Bernanke want to get rid of the debt ceiling. 

Remove it and it's an unlimited credit card.

Charge it to infinity and Bernanke and the Federal Reserve will suck up all the debt with treasury purchases.

Let's double up on those food stamps, free rent, free cell phones, free education, free health care and free spending money.

See, the best things in life are free. Let the poor saps that earn money pay for the good life.


Tsar Pointless's picture

TP says "Pull my finger".

lolmao500's picture

Just talked to my Keynesian friend who has a doctorate in finance, don't worry, the US is in great shape!

/wish I was kidding

Racer's picture

And the 'markets' go ever higher on this

Tsar Pointless's picture

I know, right?

Just think: If only Fitch and S&P would come out and warn on another US downgrade, we might be able to push the Dow toward 400 on the day.

There is still a half hour remaining in the trading day. Anything could happen.

Well, except for a falling market on the first day of a New Year, and a new month.

G_T_A_44's picture

Debt ceiling? Or is it the Shoot-for Target? Or is it merely the High-bar; Pole Vault jumper event? Nevertheless: OTC Derivative apocalypse; Bond Mkt implosion, as well as global currency' crisis awaits.

ekm's picture

Debt ceiling is a mind trick.

It's not for USA.


Debt ceiling is there to give the APPEARANCE to the world that USA will NOT abuse the reserve currency status.


If the debt ceiling law is cancelled, the appearance will vanish and dollar could actually vanish.

yogibear's picture

"If the debt ceiling law is cancelled, the appearance will vanish and dollar could actually vanish"


That's the idea.

G_T_A_44's picture

"dollar could actually vanish."

The process of such is due time~

MedTechEntrepreneur's picture

Hey Moodys! Fa get about it....we're already done for...your chance to be relevant was 1999.

Banksters's picture

"While I will negotiate over many things, I will not have another debate with this Congress about whether or not they should pay the bills they have already racked up," Obama said in remarks in the White House.

Obama is a banksters wet dream. Debt Repudiation, YES WE CAN.
TerminalDebt's picture

he meant he will wait until the next congress gets sworn in before he goess begging to have his credit limit raised.


RobD's picture

No it means that he will use Section 4 of the 14th amendment to nullify the congress on the debt limit.

Dangertime's picture

Seems clear that the IMF is on the socialistic side of the curve.


The debt limit must be raised, but no worries on the DEBT/GDP ratio????!




yogibear's picture

"but no worries on the DEBT/GDP ratio????!"

It all depends on how you measure it. With or without future obligations.

DutchR's picture

Last night i tried a thought experiment.

Pictured myself looking from the moon to earth.


For what, I tought........



Only one blue marble, and it is not ours.

lolmao500's picture

All on friday (who knows) : Fitch, Moodys and SP downgrade the US and Illinois ban guns... then all hell breaks loose during the week-end...  and I bet the market would still be up on Monday.

Boilermaker's picture

It HAS TO.  Didn't you know?  The fate of the entire Republic rests on the valuations and P/E's of common equity.  PLUS, a few extraordinarily rich billionaires get EVEN MORE extraordinarily'ly richer.

My god...where have you been?

Dr. Engali's picture

Yeah like uncle Warren is going to allow Moody's to downgrade the U. S. I'll believe that when Becky Quick stops sucking his withered old dick.

jmbruegge's picture

WHAT THE FUCK IS GOING ON ????  Market goes vertical right at the same time the Moody's news comes out ?!?!?

US Credit downgrade = Good

Deleveraging and personal savings = BAD

Can someone please rationalize this before I jump out the window !!

Kramer : "Jerry, I'm losin it !"

CrashisOptimistic's picture

Dood, you read ZH.  You know perfectly well HFT is 80% of volume.

THERE IS NO MARKET.  GET YOUR MONEY OUT OF IT.  It's all whimsy and headline reading.

There is no prediction of price action.  There is FORCING of price action.  GET OUT OF IT.

Don't trade short.  Don't trade long.  Buy farmland.  Do you really think in 10 years you would regret owning farmland?

bidaskspread's picture

This is a stupid post but want opinions.  I sit here struggling with the concept of US debt. Does it even exist is my question or is it a media made issue. Here is what I am considering. 1. We can print any promises that we make. 2. The FED can buy any issue of debt from the treasury without restriction.3. Hyper-inflation can be controlled by the following I. Food we are an exporter, we flood with more supply. II. Energy we will be the biggest producer of oil in the US by 2020 according IEA, that's without considering all the natural gas found.III. we can off-shore/on-shore to control wages4. We have $100 trillion in future promises but yet are still able function as society.  What am I missing, and where does it break ?

G_T_A_44's picture

where does it break ?


When $600T in OTC Notionals Lava the earth.

adr's picture

Four years of Bernanke Bux and Obama have destroyed 20 million+ jobs in the $35k-$65 range. None of those jobs came back. Six million or so $9 an hour jobs were added, by having people over the age of 55 go back to work. Even with the added unretirees, the labor force participation rate has fallen for four staight years.

Food stamps, SS disability, and other welfare programs are creating new lines on an exponentially growing chart.

So yes we may be able to print all the bux we need, but at the same time every fake dollar printed sends more people to the unemployment line and into the trough to suck on the government tit.

I guess it ends when nobody is actually employed in the private sector. Also being employed by a publicly traded corproation no longer counts as private employment, because every public company is now 100% dependent on Bernake for its survival.

Jack Sheet's picture

1 don't believe the IEA
2 For some fairly convincing end game scenarios read Jim Willie's public posts on or even better subscribe to his hat trick letter. Basically the dollar will lose at least 50% of its purchasing power within the US borders and there will be social upheaval .

bidaskspread's picture

I agree, typically the IEA produces reports that are not even close. My brother is a petroluem-geologist and what he is saying and seeing is that it's big and everywhere. I have also personally seen the Bakken Oil looks like rootbeer. Very light , high cut rates in light ends ( gasoline) and distillates. This is the only reason why I actually beleived their report. Will check out Jim Willie, thanks for the tip

Bastiat009's picture

Since people in Congress refuse to do what they've been elected for, let the IMF run the US, just like Greece (Goldman won't complain).

adr's picture

Peak at 80% debt to GDP? When did the USA go above $20 trillion in GDP? I thought we were still around $17 trillion with a $16.8 trillion debt.

phoolish's picture

What more can be done?  We're printing as fast as we can already.


Boilermaker's picture

Start circulating $10,000 notes again.  That'll help get it there faster.

Mad Mohel's picture

OH FUCK! Not Aaa! Seriously who are these clowns fooling? That shit should be a straight A,B,C,D,F rating. AAAAAAAAA and work your way down from there is a sign that they are pussies and their threats to downgrade don't mean a shit. It should be a D in a real world!

Getting Old Sucks's picture

Does it really matter anymore?  You no lend, we no protect.  How many have neighbors who will eat you if we no there? 

Quinvarius's picture

Obviously we need a new rating system in which we can call US government debt the toilet paper it is even though we won't default on it.  Stop trying to stick a square peg in a round hole.  US Treasuries are just a promise to print.

Getting Old Sucks's picture

Just want to say that Moody's and all the rating agencies are BS!  What rating would you give the USA right now knowing what we know.  Without the printing press?  JUNK!  All this BS with rating agencies are just another tool TPTB are using to persuade the political (impotent) process.  It's just propaganda.  Call it for what it is.

unplugged's picture

Absolutely meaningless.  BFD.

WSP's picture

As always, excellent reporting by Zero Hedge so no fault there, but does anyone believe that Moody’s or S&P ratings mean anything? Seriously, we live in the most corrupt financial system in the history of mankind where fraud, corruption, lies, deceit, and gamesmanship to rig markets is standard and accounting fraud is encouraged at all levels of government. If our criminal government can rig markets and everything else, who really believes that Moody's would tell the truth about anything?  They are in the back pocket of the banksters too.

What I find astonishing is that anybody would believe what Moody's, S&P, or anything that comes from the corrupt financial and government centers has to say---they are all bought and paid for in this dystopian criminal society we live.



Meatballs's picture

Serve your IMF masters Washington BITCHEZ!

q99x2's picture

What is meaningful is that these ongoing facts prove the need to re-establish the rule of law and in the meantime begin the development of a form of digital open source government, based upon the constitution of the USA, that can quickly be implemented upon the collapse of this one. When this NWO horse shit ends somebody is going to have to pick up the pieces and a good time to start is now.

Steve in Greensboro's picture

Why in the world would the IMF recommend removing the debt ceiling?  Other than being leftist tools in the tank for Obama, I mean?