Kevin Williamson notes that “sleepy” Moody’s, historically not an organization given to over-reaction and speediness, is raising a red flag about the US’s losing its AAA credit rating soon:

back when Enron was still doing a passable impression of a going concern, the big credit-raters kept giving it AAA grades…while the markets had driven its share price down almost to zero.

And here’s what sleepy Moody’s has to say [about the US]: “Growth alone will not resolve an increasingly complicated debt equation. Preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.” Tighten in and focus on the words “fiscal adjustments.” This was pre-Obamacare…

Our budget deficit is currently about 10 percent of GDP and going higher. Greece’s is 12.7 percent of GDP — significantly higher, sure, but not outrageously so. At the end of fiscal 2009, U.S. federal government debt equaled 83 percent of GDP, 53 percent of which is held by the public. (Another 30 percent is “intra-government” debt, meaning money owed to the mythical Social Security trust fund and the like. The usual approach is to talk only about publicly held debt and to pretend that the rest does not represent real obligations, which is malarkey.)

But even that does not tell the whole story: Official government debt figures do not account for the Fannie Mae and Freddie Mac obligations taken on by the government, and those amount to $5 trillion, i.e. more than all 2009 federal spending. They also don’t count remaining liabilities related to the Wall Street bailout.

The NYT opined: “We…suspect the downgrade will never happen since downgrading the United States would probably require downgrading all the American banks — the agencies’ main clients. Even if it did, it is hard to envisage that it would have a huge impact.” We can’t remember a more fatuous recent statement in the Times. At a minimum, the downgrade of the US would appear to mean the end of the dollar as a premier reserve currency, and would make the future $10 trillion in new deficits (pre-Obamacare!) even more unfinanceable than they already are.

This entry was posted on Thursday, March 25th, 2010 at 4:04 am and is filed under business, Democrats, General, Republicans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.