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Global Credit Research - 11 Sep 2012
New York, September 11, 2012 -- Budget negotiations during the 2013 Congressional legislative session
will likely determine the direction of the US government's Aaa rating
and negative outlook, says Moody's Investors Service in the
report "Update of the Outlook for the US Government Debt Rating."
If those negotiations lead to specific policies that produce a stabilization
and then downward trend in the ratio of federal debt to GDP over the medium
term, the rating will likely be affirmed and the outlook returned
to stable, says Moody's.
If those negotiations fail to produce such policies, however,
Moody's would expect to lower the rating, probably to Aa1.
Moody's views the maintenance of the Aaa with a negative outlook
into 2014 as unlikely. The only scenario that would likely lead
to its temporary maintenance would be if the method adopted to achieve
debt stabilization involved a large, immediate fiscal shock—such
as would occur if the so-called "fiscal cliff" actually
materialized—which could lead to instability. Moody's
would then need evidence that the economy could rebound from the shock
before it would consider returning to a stable outlook.
Moody's notes that it is difficult to predict when during 2013 Congress
will conclude negotiations that result in a budget package. The
Aaa rating, with its negative outlook, is likely to be maintained
until the outcome of those negotiations becomes clear.
The rating outlook also assumes a relatively orderly process for the increase
in the statutory debt limit, says Moody's. The debt
limit will likely be reached around the end of this year, and the
government's ability to meet interest and other expenses out of
available resources would likely be exhausted within a few months after
the limit is reached.
Under these circumstances, the government's rating would likely
be placed under review after the debt limit is reached but several weeks
before the exhaustion of the Treasury's resources. Moody's
took a similar action during the summer of 2011.
For more information, please see the report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_145122.
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Steven A. Hess
Senior Vice President
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
MD - Sovereign Risk
Sovereign Risk Group
Moody's issues update on the outlook for the US government's debt rating: Budget negotiations key
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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