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Stocks fall as US receives warnings of losing our AAA credit rating

posted at 7:20 pm on March 15, 2010 by

New warnings have surfaced that the United States — and the UK — are in danger of losing their top-notch AAA credit ratings.

The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”

… Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.

This has caused stocks to drop as fears about the US economy continue to grow. Right now, our debt loads are stretched to the max. If our rating drops, it will become more expensive for us to borrow money. We aren’t the only country with this problem — stocks are dropping in the UK and in China as well — but it certainly doesn’t make the matter any better to know we aren’t alone.

Our deficit is over $1.5 trillion right now. Considering our lackluster economy, and the way our government is spending like there’s no tomorrow, it’s not surprising that Moody’s isn’t all that confident about our credit. And the economic geniuses in Washington right now have no plan besides exactly what Obama campaigned on: hope and change. They hope that we’ll see rapid GDP growth, which will change the amount of money in our treasury.

For now, our credit rating is safe. But if things keep going the way they’re going, we’ll no longer be one of the seventeen countries with a AAA credit rating. But look at this graph, and tell me how optimistic you are about us getting our debt and spending under control:

If things keep going the way they are going, we will lose our AAA credit rating. Stocks will continue to drop. The unemployment rate will rise. And yet, Obama, Pelosi, and Reid are working to take over 1/6th of the US economy. Clearly, this isn’t the best time to be taking on more government expansion. Right now, politicians should be working on getting our deficit and our spending under control.

What will it take for Obama to get that message??

Cross-posted from Cassy’s blog. Stop by for more original commentary, or follow her on Twitter!

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What will it take for Obama to get that message??


Oh, right. Rhetorical. Got it.

Hawkins1701 on March 15, 2010 at 9:12 PM

How long until the next stock-market freefall a la 1929?

Dark-Star on March 15, 2010 at 9:13 PM

What will it take for Obama to get that message??

I do not believe he is capable of getting the message.

JohnTheBuilder on March 15, 2010 at 9:17 PM

What will it take for Obama to get that message??

An orange jumpsuit?

Daggett on March 15, 2010 at 11:31 PM

Wait until we see jug ears Wednesday night party become a week long bender.

Farfed on March 16, 2010 at 10:01 AM

Send the whole system crashing down and rebuild Utopia from the ashes. That is the whole end of Obama’s strategy.

spmat on March 16, 2010 at 12:02 PM