Moody's Sends a Ratings Warning to Triple-A Governments
The triple A-ratings are fine for now, according to the credit rating agency, but they could be downgraded in the event that budget deficits spiral out of control and growth remains weak, leading the triple-A nations to have trouble keeping up with their debt payments.
The problem, as Moody's sees it, is that spending cuts are unavoidable, but some governments hold out hope that various stimulus packages will accelerate economic growth. That's not a likely scenario, says Moody's. And if governments can't gracefully cut their stimulus spending, their finances could be heading for turmoil.
"At the current elevated levels of debt, rising interest rates would quickly compound an already complicated debt equation, with more abrupt rating consequences a possibility," the Moody's report said.
Repeating Earlier Concerns
The ratings agency has raised similar concerns about U.S. debt for quite awhile now. In December 2008, for example, Moody's warned that the certain countries' government debt (such as in the U.S.) were "testing" triple-A bounds. At the same time, however, Moody's said a select few governments (presumably including the U.S.) had the financial muscle to "rise to the challenge" of escalating debt.
Again in January 2010, Moody's warned that the biggest threats to the financial health of the U.S. are the Medicare and Social Security programs. If those entitlements aren't reformed to put them on sounder financial footings, Moody's warned, they would pose a long-term threat to the country's economic health -- and its triple-A rating.