Moody's Threatens US Downgrade Due To Soaring Debt, "Fiscal Deterioration"

Back in 2011, Standard & Poors' shocked the world, and the Obama administration, when it dared to downgrade the US from its vaunted AAA rating, something that had never happened before (and led to the resignation of S&P's CEO and a dramatic crackdown on the rating agency led by Tim Geithner).

Nearly seven years later, with the US on the verge of another government shutdown and debt ceiling breach (with the agreement reached only after the midnight hour, literally) this time it is Warren Buffett's own rating agency, Moody's, which on Friday morning warned Trump that he too should prepare for a downgrade form the one rater that kept quiet in 2011. The reason: Trump's - and the Republicans and Democrats - aggressive fiscal policies which will sink the US even deeper into debt insolvency, while widening the budget deficit, resulting in "meaningful fiscal deterioration."

In short: a US downgrade due to Trumponomics is inevitable. And incidentally, with today's 2-year debt ceiling extension, it means that once total US debt resets at end of day - unburdened by the debt ceiling - it will be at or just shy of $21 trillion.

We expect if not a full downgrade, then certainly a revision in the outlook from Stable to Negative in the coming  months.

Here's Moodys:

The stable credit profile of the United States (Aaa stable) is likely to face downward pressure in the long-term, due to meaningful fiscal deterioration amid increasing levels of national debt and a widening federal budget deficit. However, the US economy is very strong, wealthy, dynamic and well diversified, and its role in the global financial system is unmatched. These factors help compensate for the impending fiscal weakness, Moody's Investors Service says in a new report.

Moody's has already indicated that rising entitlement costs and rising interest rates will cause the US's fiscal position to further erode over the next decade, absent measures to reduce those costs or to raise additional revenues. The recently-agreed tax reform will exacerbate and bring forward those pressures.

Moody's current baseline forecast is that the sovereign balance sheet will continue to weaken over the coming decade. Absent corrective fiscal measures, the US's Aaa rating will rely increasingly on its unparalleled economic base and the central role it plays in the global financial system.

The US economy's dynamism, competitiveness, rich resource endowment, high income levels and relatively supportive demographic trends underpin its economic strength. While evidence of declining growth potential, coupled with emerging aversion to open trade and foreign labor during a period of rising global competition, suggest that this level of relative strength could erode over time, we expect the US' broad economic strength to support its credit profile for the foreseeable future.

Moreover, the role of the US dollar in global financial markets and the depth and liquidity of the US treasury market remove all but the most extreme government liquidity and balance of payment risks. They insulate the US from external shocks and shifts in financing conditions in a way not seen with other sovereigns.

Moody's research subscribers can access this report, "Preeminent financial, economic position offsets weakening government finances", at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1108357

 

Comments

Dsyno DrReaper Fri, 02/09/2018 - 12:20 Permalink

Dogecoin was literally started as a joke, named after a dog.

https://en.m.wikipedia.org/wiki/Dogecoin

"Dogecoin is a cryptocurrency featuring a likeness of the Shiba Inu dog from the "DogeInternet meme as its logo. Introduced as a "joke currency" on 6 December 2013, Dogecoin quickly developed its own online community and reached a capitalization of US$60 million in January 2014."

In reply to by DrReaper

ejmoosa Pool Shark Fri, 02/09/2018 - 10:17 Permalink

GDP does not pay off debt.  Earnings do.

By using GDP you are including government spending.  Take out the government spending and see how your numbers look.

 

You could take more than 10 years of collecting all the earnings from all the businesses and we still would not come close to paying off our debt with spending accelerating.

In reply to by Pool Shark

Sudden Debt Pool Shark Fri, 02/09/2018 - 12:07 Permalink

ehe... just need to see how their population lives right now...

70% in japan works temp jobs and most of those working temp jobs live in poverty.

and to think that Japan has a total shortage of working age people.

And let's not forget that it's an honor for people to buy governement debt.

 

Now let's look to America... a very large influx of young immegrant workers who will drive wages down even more... check...

temp jobs are also on the rise in a big way... check...

poverty in America... well yeah, it's America... check

 

but nobody buys the government debt.

Even without a downgrade, America slides deeping to 3rd world status with each debt increase.

THE FUTURE IS ALREADY SOLD AND NOW THEY'RE SELLING ORGANS TO KEEP THE FIRES BURNING

In reply to by Pool Shark

Scipio Africanuz east of eden Sat, 02/10/2018 - 05:28 Permalink

Why shouldn't he buy drinks for everyone, it's on the house! Hell, why tiptoe around the debt? He should borrow $10 trillion at a go, why pretend after all, we owe it to ourselves.

Note to Trump: borrow big, borrow massively, break the record, have a big beautiful huuuuge DEBT, so huge, the world trembles at the size. Make America Great Debtors, the greatest ever bar none!!!

In reply to by east of eden

Give Me Some Truth ejmoosa Fri, 02/09/2018 - 10:43 Permalink

They can downgrade debt one tiny tic if they want, it doesn't matter. "Someone" is going to buy whatever debt the treasury issues.

This said, Moody's and S&P know who not to piss off.

The more debt issues that are extended, the better they do.

 

It's like H&R block lobbying for a simplified flat tax. Not going to happen. They are all profiting from the Status Quo system.

In reply to by ejmoosa