- Feb 12, 2007
- 59,384
- 24,018
- 2,290
Greece is indeed the Canary in the Sovereign Debt Coal Mine.
Moody's is now predicting that the debt crisis in the U.S. may explode as early as 2013 (which means it could be even earlier - especially given the extremely optimistic GDP growth assumption in the Obama budget).
Spiraling debt is Uncle Sam's shock collar, and its jolt may await like an invisible pet fence.
"Nobody knows when you bump up against the limit, but you know when it happens it will really hurt," said fiscal watchdog Maya MacGuineas of the Committee for a Responsible Federal Budget.
The great uncertainty about how much debt is too much has tended to make fiscal discipline seem less urgent, rather than more. There is no obvious threshold beyond which investors will demand higher real yields for holding U.S. debt. Vague warnings from ratings agencies about the loss of America's 'AAA' status haven't added much clarity until recently.
In the wake of the financial crisis and recession, Moody's Investors Service has brought new transparency to its sovereign ratings analysis so much so that 2018 lights up as the year the U.S. could be in line for a downgrade if Congressional Budget Office projections hold.
The key data point in Moody's view is the size of federal interest payments on the public debt as a percentage of tax revenue. For the U.S., debt service of 18%-20% of federal revenue is the outer limit of AAA-territory, Moody's managing director Pierre Cailleteau confirmed in an e-mail.
Under the Obama budget, interest would top 18% of revenue in 2018 and 20% in 2020, CBO projects.
But under more adverse scenarios than the CBO considered, including higher interest rates, Moody's projects that debt service could hit 22.4% of revenue by 2013.
U.S. Debt Shock May Hit In 2018, Maybe As Soon As 2013: Moody's - IBD - Investors.com
If 22.4% is the 2013 downwide scenario, then crossing the 18%-20% threshold will occur earlier. Perhaps this is what the Mayans were predicting as the end of the world as we know it in 2012.
Moody's is now predicting that the debt crisis in the U.S. may explode as early as 2013 (which means it could be even earlier - especially given the extremely optimistic GDP growth assumption in the Obama budget).
Spiraling debt is Uncle Sam's shock collar, and its jolt may await like an invisible pet fence.
"Nobody knows when you bump up against the limit, but you know when it happens it will really hurt," said fiscal watchdog Maya MacGuineas of the Committee for a Responsible Federal Budget.
The great uncertainty about how much debt is too much has tended to make fiscal discipline seem less urgent, rather than more. There is no obvious threshold beyond which investors will demand higher real yields for holding U.S. debt. Vague warnings from ratings agencies about the loss of America's 'AAA' status haven't added much clarity until recently.
In the wake of the financial crisis and recession, Moody's Investors Service has brought new transparency to its sovereign ratings analysis so much so that 2018 lights up as the year the U.S. could be in line for a downgrade if Congressional Budget Office projections hold.
The key data point in Moody's view is the size of federal interest payments on the public debt as a percentage of tax revenue. For the U.S., debt service of 18%-20% of federal revenue is the outer limit of AAA-territory, Moody's managing director Pierre Cailleteau confirmed in an e-mail.
Under the Obama budget, interest would top 18% of revenue in 2018 and 20% in 2020, CBO projects.
But under more adverse scenarios than the CBO considered, including higher interest rates, Moody's projects that debt service could hit 22.4% of revenue by 2013.
U.S. Debt Shock May Hit In 2018, Maybe As Soon As 2013: Moody's - IBD - Investors.com
If 22.4% is the 2013 downwide scenario, then crossing the 18%-20% threshold will occur earlier. Perhaps this is what the Mayans were predicting as the end of the world as we know it in 2012.
