Moody's: We'll downgrade U.S. without budget deal

(AP) NEW YORK - Moody's Investors Service on Tuesday said it would likely cut its "Aaa" rating on U.S. government debt, probably by one notch, if federal budget negotiations fail.

If the highly partisan Congress does not reach a budget deal, more than $600 billion in spending cuts and tax increases will automatically kick in starting Jan. 1, a scenario that's been called the "fiscal cliff," because it is likely to send the economy back into recession and drive unemployment up.

A year ago, Moody's cut its outlook on U.S. debt to "negative," which acts as a warning that it might downgrade the rating, after partisan wrangling over raising the U.S. debt limit led the nation to the brink of default.

Rival agency Standard & Poor's took the drastic step of stripping the government of its "AAA" rating on its bonds around the same time. Fitch Ratings issued a warning of potential downgrade.

In its report Tuesday, Moody's said it is difficult to predict when Congress will reach a deal on the budget, and it will likely keep its current rating and "negative" outlook until the outcome of the talks is clear.

What is the "fiscal cliff"? A Q&A
One year after the S&P downgrade: State of the market

Moody's also noted that the government will likely again reach the debt limit by the end of the year, which means another round of negotiations in Congress on raising the limit if the U.S. is to keep paying its bills.

"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 analyst Steven A. Hess said in his report.

Despite the rating cut last year from S&P and the warnings from Moody's and Fitch, the U.S. has been able to continue borrowing at very low rates. That's because investors are still buying U.S. government bonds, as economic turmoil in Europe and uncertainty in other parts of the globe have left U.S. debt and U.S. dollars looking like safe bets. In contrast, bond investors demand high rates from troubled countries like Spain and Italy.

The stock markets plunged when the downgrade happened in August 2011, but Moody's warning on Tuesday did little to ruffle traders. The major market indexes were all modestly higher in morning trading.

[Jaylah54200]

It will be interesting to see if the Tea Party is again willing to play chicken with the American economy. Or if they learned something in the interim.

[josephp5]

Tea Party types are incapable of learning.

[sjc_1]

Just let the tax breaks expire and the cut happens, it will not be the end of the world. Drama queens...geeez.

[josephp5]

Didn't you hear? They are calling it the "Fiscal Cliff!"

You're right---so what if the tax breaks expire? Does anyone seriously think that someone that makes $389,150 in taxable income will even notice if he has to pay an additional 4.6% on the amount above that in taxes? Of course not!

Let the tax breaks expire! That's the best hope for reducing our deficit. And it's such a small increase that it's no big deal.

[tepeterso]

People also better pay attention to the election in terms of Congress...times to vote out the Tea Bags.

[all-gores]

Life is better with Obama pushing America into the abyss.

[venusvegasvada]

Time for everyone with a Grover Norquist pledge pin to grow up and throw it out the window.

See how much that is costing us? Heck, Grover Norquist isn't even an elected official! The publicly vetted representatives in our Govt. need to wake up and do the jobs they were sent there to do, without being remote controlled by some un-vetted Rich guy's agenda. I.E. REPRESENT THE PEOPLE. Not some special interest group ran by Grover Norquist.

[0bama2O12]

This is greate news! This will help dispel the arrogant myth of American exceptionalism. We have basked in this false glory for far too long.

[rayward73446]

These ratings companies are the very same that rated the junk mortgages bundled on wall street as AAA. Who cares what they say, they have lost all claim to honesty in their ratings.

[Martha12345]

I can remember President Obama telling Rep. Cantor ..........."Elections have consequences. I won." .......... in this case, the American People lost.

[venusvegasvada]

What do you think that meant? Here's my take on it:

Whoever is voted in as President has the high ground as whatever their agenda is, has passed muster by the largest body of the people.

Compare that to a Representative in the House, who is vetted by far smaller number of people. Apples and Oranges. If you add in the Norquist problem, of a special interest group that regulates Congress WITHOUT being voted into office, you have the makings of Gridlock. These representatives, who think they were sent to Washington simply to gridlock it till they get their way for their special interest group(s) are not representing Democracy at all.

Gridlock is Democracy failing and it's a sad day when people don't recognize the bigger picture is more important than their own selfishness.

[josephp5]

After he won in 2004, George W. Bush said, "I've earned some political capital, and I intend to spend it." Means pretty much the same thing!

[audemus]

This country's economy is in enough trouble without adding to it from yet another self-inflicted wound.

When the sub-prime and the huge consumer bubble burst, a lot of Americans really thought that common sense might finally prevail...but evidently there are still factions in "our" government that place more importance on embarrassing President Obama and seeing his time in office come to an end, than in doing the right and proper thing for the American people. For that alone these Teapublicans and those cowards who call themselves Republicans who are afraid to stand up to them, need to be ran out of town on a rail....tarred and feathered first.

[chevyhotrod]

"doing the right and proper thing for the American people"

What is that? Continue to borrow more and more hundreds of billionso dollars that can never be paid back, let alone the interest payment on those debts.

You might want to educate yourself on what President Obama said about the debt ceiling when he was just a Senator.

"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. ... Increasing America's debt weakens us domestically and internationally. Leadership means that 'the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better." ........ Senator Barack Obama

Can you spell h-y-p-o-c-r-i-t-e?

[audemus]

There's a few other words I can spell to, like S-C-R-E-W, as in what the Republicans are trying to do to the American people.

[californiadreaming1]

Downgrade if no budget deal? Does this mean that if there is a "fiscal cliff", then we get downgraded?