Even Moody's Thinks We're in Trouble

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Richard Drew / AP Photo The country’s top-notch credit rating is in danger of being downgraded, Moody’s is warning—and if a ratings agency that completely failed to predict the financial crisis is sounding the alarm, we should all be afraid.

Here’s how you know the massive amounts of debt compiled by the Bush administration, and the even greater debt loads promised as part of Barack Obama’s agenda, is reaching crisis proportions: Even the Wall Street bond-rating agencies are now sounding the alarm bells.

At issue is a report issued by Moody’s Investors Service that says the triple-A rating on U.S. government debt might someday be a thing of the past. The triple-A rating is, of course, an opinion, but one that carries a lot of weight in the bond markets. It is Moody’s belief that the chances the U.S. federal government will default on its debt are zero and that investors who hold U.S. bonds are guaranteed their full interest and principal payments.

The current warning shouldn’t be taken lightly, precisely because ratings agencies like Moody’s have been so late in the past. Calling attention to the country’s debt level must mean we are really heading for trouble.

In its report, the ratings agency still puts those chances at zero, but it adds that based on the sluggish economy and all of Washington’s new spending promises, the zero-percent probability of default is starting to look less and less likely in the years to come.

As someone who has covered ratings agencies and their role in the markets for two decades, I can tell you that they are masters of doublespeak because they’re constantly in cover-my-ass mode. The agencies are far from objective prognosticators; they publish ratings for investors, yet they are paid by entities that issue debt, meaning their bias is to go easy on bond issuers.

The U.S. government—as far as I know—doesn’t pay Moody’s or any of the other agencies, but the report calling into question the U.S. triple-A rating contains all the ass covering the rating agencies are famous for. Consider this: While Moody’s was raising the notion of a downgrade of U.S. debt based on the massive debt the country has accumulated and will accumulate in the coming years—causing the stock markets to fall in early morning trading—the agency also said the U.S. still has the ability to cover debt-interest payments with current revenue, though that revenue may not be enough given the weak economy and increased spending.

Of course, the U.S., like other highly indebted countries, can take steps to lower its debt load (i.e. higher taxes and cutting spending) though Moody’s says those steps “will test social cohesion.” You get my point.

Meanwhile, the raters’ track record in predicting a crisis of this magnitude is pretty weak, as well. Many of those esoteric bonds that were held on the books of the banks and later destroyed the financial system in 2008 because they were worth pennies on the dollar were rated triple-A. The raters, for example, gave Orange County, California, high grades before its bankruptcy in 1994, failed to see the bond-market implosion in 1998, and had no idea that the housing market was catering in 2007, until it cratered, and the bonds backed by risky mortgages were defaulting and spreading a virus that, save for a government bailout, would have destroyed what was left of the financial system.

That said, the current warning shouldn’t be taken lightly, precisely because ratings agencies like Moody’s have been so late in the past. Calling attention to the country’s debt level must mean we are really heading for trouble.

So what would it mean for a downgrade? First, higher borrowing costs.

View as Single Page 12 Back to Top March 16, 2010 | 12:28am Facebook | Twitter | Digg | Share | Emails | print var OutbrainPermaLink=document.location.href.replace(document.location.search, '').replace(/\/\d+\/$/,'/').replace(document.location.host, 'thedailybeast.com'); var OB_Template = "The Daily Beast"; var OB_demoMode = false; var OBITm = "1255455386150"; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ''; document.write(str); } Us Credit Rating, Us Debt, Obama Spending Programs, Washington Spending Promises, Us Government Debt, Us Government Debt Rating, Triple-a Rating, Moody's Investors Service, Bond Rating Agencies, George W Bush, Recession, Barack Obama  (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: 12 HollyK64

And passing health care will only add to this problem. Does Obama have a death wish for this country?

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 1:32 am, Mar 16, 2010 FarLeftFist

I think we should pass this debt on to the next administration, we have bigger issues to deal with currently. Of course Holly missed the memo that passing healthcare will actually lower our debt, but I'm sure she can't get caught up in things like facts and knowledge.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 1:38 pm, Mar 16, 2010 pennsykid2000

Why not? Bush passed $5 trillion in new debt on to Obama. What I don't get is why Moody's and the other rating agencies are still in business and their executives aren't in jail. They were critical to the collapse of the markets in 2007 and 2008 due to their fraudulent rating of crap as AAA. One wonders if they are similarly overstating the fiscal health of the U.S.

Flag It | Permalink 4:39 pm, Mar 16, 2010 caboclavo

Sorry far left, but what "memo's" are you reading? They must be the ones put out by the present administration, and we all know that the present administration wouldn't lie to us, right? If you are so "privy" to the inside info that the rest of us don't receive, please tell me how we are going to pay for this without a complete collapse of our economy? I'll be waiting for your response.......!

Flag It | Permalink 6:23 pm, Mar 16, 2010 SteveStephens

Wabo in Cabo, everyone will be required to pay fot Health Insurance. It will be cheap, and everyone won't pay, but it will create an entire revenue stream for the Program. Besides, my congressman and my mailman love their government health care. They say it is great.

Flag It | Permalink 9:40 pm, Mar 16, 2010 camper

Obviously your left fist was doing something to distract you. Did'nt your Mother tell you that that kind of behavior would make you blind. How long will you schmucks keep harping about the previous administration. Obama asked for the job. Obama knew the score. Obama is sucking air..... and we are all going to drown if he doen't get his feet on the ground....that said ,who the hell is Bush....sorry can't remember him.

Flag It | Permalink 9:41 pm, Mar 16, 2010 SensiStar

caboclavo: The economy already collapsed. Did you miss the Bush years.

Flag It | Permalink 9:44 pm, Mar 16, 2010 Bloomy

What problem? Moody was right in the middle of the banking problem. Moody's gave AAA ratings to the banks to sell their Credit Default Swaps. They went hand in hand with Goldman Sachs, Morgan and the others. And now everyone wants to believe them. PASS. credibility is zero.

Flag It | Permalink | Reply 1:44 pm, Mar 16, 2010 Ncmist

Obama knows that all we have to do is print more money and just keep passing the big lie to the public. Hey, the guy writing this is just a stupid republican who doesn't know squat. And besides, we'll just pass it on to the next administration, right FarLeft? Damn Holly, get a grip.

Flag It | Permalink | Reply 4:40 pm, Mar 16, 2010 SteveStephens

Care to explain , or give any concrete examples, HollyK Teabagger?

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 9:38 pm, Mar 16, 2010 lreyn84702

How about logic Steve? Can you give any concrete examples of how this does not increase the deficit, other than the President said so? The program relies on collecting tax revenues years ahead of paying out benefits in order to show a nuetral deficit for a ten year period. What happens after the ten year period, Steve? The same thing that happens to Social Security and Medicare. Wake up!

Flag It | Permalink 7:28 am, Mar 17, 2010 JohnR22

Obama is a messianic ideologue. He sees himself as a world-changing Man of History, and his ideology is extreme european-style socialism. He's gone all-in on HCR and once it's passed, plan for him to double down on Cap & Trade, immigration reform (i.e. amnesty), and education reform (i.e. subsized college tuition). He's more than happy to lose the House in November, and to lose the Senate/Presidency in 2012 if he can accomplish these things.

Flag It | Permalink | Reply 10:44 am, Mar 17, 2010 socialworklady

FEAR FEAR FEAR FEAR FEAR FEAR FEAR FEAR

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 2:41 am, Mar 16, 2010 akcita

Wow, you must pay your bills with good feelings. As Social Security has been borrowed from for the past 40 years, it will soon be insolvent based on the IOU's that are being called in by Social Security on our government's last 40 years of borrowing. So, borrowing more doesn't concern you? I wonder what kind of help you give people as a social worker? is it the ACORN kind of help?

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 8:16 am, Mar 16, 2010 SensiStar

Bush could have saved SS. He decided to give the rich a tax cut at the cost of 1.7 trillion. I'm pretty sure you supported those tax cuts even though they helped destroy our economy. Or are you still waiting for all those rich people to shower us middle class people with jobs.

Flag It | Permalink 9:46 pm, Mar 16, 2010 Aslanleon

akcita- socialworklady sneers at people who have beat alcoholism and are sober. That's about the level of her compassion and an indicator of her social work competence.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 1:32 pm, Mar 16, 2010 socialworklady

Aslanleon, I assume you refer to my description of Beck as a "dry drunk." "Dry Drunk" has been described as "A condition of returning to one's old alcoholic thinking and behavior without actually having taken a drink." http://alcoholism.about.com/cs/info/a/aa081397.htm I'm surprised, what with you being a member of the clergy, the police force, and a (part time?) history teacher that you have never seen this phenomenon.

Flag It | Permalink 2:23 pm, Mar 16, 2010 Aslanleon

Oh, I've seen it. What I see when I read your comments is someone who is so blinded by politics that they attack their opponents on grounds they would be indignant about if someone did the same for their idols.

Flag It | Permalink 4:25 pm, Mar 16, 2010 socialworklady

Aslanleon, But isn't that what makes your country so great? ~ In his dry drunk state of mind, Beck has the freedom to cry: FEAR FEAR FEAR FEAR FEAR FEAR FEAR FEAR FEAR NAZI COMMIE NAZI COMMIE NAZI COMMIE NAZI COMMIE BE VERY AFRAID AMERICA BE VERY AFRAID AMERICA And I, an observer from another land, am free to visit an American owned blog and say: Hey, this looks like classic dry drunk behaviour to me.

Flag It | Permalink 5:23 pm, Mar 16, 2010 socialworklady

And one more thing, Aslanleon, Since you are familiar with the dry drunk phenomenon, wouldn't you agree that Beck exhibits the symptoms of a classic case?

Flag It | Permalink 5:26 pm, Mar 16, 2010 Aslanleon

Not unless being annoying is a symptom of being a dry drunk. Also, I do psychology, not pop psychology. It's more boring but explains more.

Flag It | Permalink 5:33 pm, Mar 16, 2010 socialworklady

Aslanleon, Okay. According to you, you've been a: Police Officer Clergyman History Teacher And you "do" pyschology. Ummm....and how is it that you "do" this thing you do?

Flag It | Permalink 7:00 pm, Mar 16, 2010 Re-Horakhty

If the U.S. Federal Government has to borrow money from foreign countries, the Chinese, the Japanese, the Arabs and the Africans just might be paying those Social Security checks that senior citizens and the disabled are collecting monthly. Let%u201Fs see if any of the elderly or disabled refuse that borrowed money. One day the United States may owe everybody else in the world, except for its own citizens. One thing we know for sure...Europeans won%u201Ft be borrowing shyt from other Europeans. Most other Europeans are broke, depleted and they do not trust the U.S. that much to be lending them money.

Flag It | Permalink | Reply 7:29 am, Mar 17, 2010 socialworklady

DEATH WISH! DEATH PANELS! DOOM AND GLOOM! HOLD ON TO YOUR KIDDIES! RUN RUN RUN RUN RUN RUN! THE SKY IS FALLING!!!!!! (OH, AND TEH GAYZ ARE MARRYIN' TOO!) END OF THE EMPIRE! AAAAAAAHHHHHH!!!!!

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 2:43 am, Mar 16, 2010 DCraigLivingstone

You forgot the Repugs fav, 'TERROR!!!"

Flag It | Permalink | Reply 9:55 am, Mar 16, 2010 sailormoon

There is Death panels. They will not be able to provide, abortions.Now where is the poor, unable to go to the doctor and hospital go????Did you know Rita ?It is the end of the empire. Not for all. But certainly in 2 to 4 years.China, India ,Brazil and many other powerfull countries, are watching the downfall, calculating it and salivating it. They are not spending trillions in wasted wars, they spend it Home, and they have their own middle class growing&expandingThat gives, taxes, medicine,income ,growth, and hapiness.Hold on to your kiddies, because they have no school, and they get in trouble and dummer everyday.!!! Sorry, on many, many, families the sky is falling. Not on govt, and washington, and wealthy corporate and bankers. That is good, but the jobs of corporations and businesses are not growing here.call Jet Blue, wait 11/2 for a human being, and you will see what is happening.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 10:00 am, Mar 16, 2010 wrathofkhan

What?

Flag It | Permalink 1:32 am, Mar 17, 2010 octavio

Old news!; We knew that the USA is a debtor country because the stinky crooked industries like the USA health care industry,USA banking industry,USA gold mining industry,et cetera,had been riping off,cheating the average John Doe for 40 years,100 years et cetera ... The republicans are coming with this article.They are desperate,they are thinking that because this article the single payer health care bill will not pass.They are wrong!. The only way to lower health care costs is by passing the single payer health care bill as soon as possible!. If the banks are waiting for another government bail out ( free money ) they are going to have to wait until some body like George W Bush becomes a USA president and starts riping off the tax payers again!. The wealthy corporations,the filthy rich have crooked lawyers working for them 24 hours per day looking for tax loop holes and do not pay taxes or pay almost nothing,just because they have a post office box in the Bahamas or Panama et cetera. We need Tax System reform.Any body making more than $ 171,000 per year needs to be paying 91% taxes et cetera. The crooked republican senators.Since they are a political fraud need to pay 100% tax rate!. Stop the crooks! Stop the tax loop holes!.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 3:14 am, Mar 16, 2010 Read Full Article »