Moody's Issues Credit Update Of United States
New York, December 22, 2011 -- The following release represents Moody's Investors Service's summary credit opinion on the United States of America and includes certain regulatory disclosures regarding its ratings. This release does not constitute any change in Moody's ratings or rating rationale for United States of America.
Moody's maintains the following ratings on United States of America, Government of
- Long Term Issuer (domestic and foreign currency) ratings of Aaa
- Senior Unsecured (domestic currency) rating of Aaa
Moody's Aaa government bond rating is based on the very high degree of economic, institutional strength, and government financial strength, and low susceptibility to event risk. Although government financial strength weakened as a result of interventions to support the financial system and the economy, the basic factors supporting the Aaa rating remain intact.
The US is the world's largest economy and is still the center of global trade and finance, supported by flexible markets and open trade and financial regimes. Over time, American economic competitiveness has been reinforced by fairly rapid productivity growth, a high degree of technological innovation, and generally sound public finances. Recently, prospects for some of these factors have deteriorated, most notably government finances. These finances have been substantially worsened by the credit crisis, recession, and government spending to address these shocks. The ratios of general government debt to GDP and to revenue deteriorated sharply during the crisis and are now near the top end for Aaa-rated countries. The federal government debt ratios, which Moody's considers relevant to the rating given the US's relatively decentralized fiscal structure, rose steeply and will continue their upward trend under current policies.
Despite high debt levels, the financeability of the US federal government debt remains high, in part due to the global role of the US dollar. This has been demonstrated during the course of 2011, with the yields on Treasury securities falling to near-record lows at times. Over the longer term, this role could be eroded, but Moody's sees no immediate threat to the US government's ability to continue to access financing at relatively low cost.
The rating outlook is negative. Structural fundamentals, political stability, and post-crisis economic prospects support a Aaa rating. However, the outlook was changed in negative in August 2011 because of the risks of a continued rise in federal government debt ratios over the medium term, despite the recent passage of the Budget Control Act, which will result in some deficit reduction over the next decade. Without further deficit reduction measures, the rating could be placed on review for downgrade sometime in the coming year or two.
What Could Change the Rating - Down
If the upward trend in projected debt ratios and interest costs continues, and further measures beyond the recent agreement to stabilize and ultimately reverse them are not put into place, the rating could eventually move down. The individual measures are less important for the rating than the actual deficit and debt levels that would result, although it is likely that over the longer term entitlement reform will need to be part of any substantial fiscal reform. In addition, downward pressure on the rating could develop as a result of lower economic and employment growth rates than now expected.
The principal methodology used in this rating was Sovereign Bond Ratings published in September 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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