Wehrwolfen
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Next Comes The US Downgrade
by Tyler Durden
01/02/2013
From SocGen:
The scaled-down deal passed in the Senate addressed the fiscal cliff but did nothing to address longer term fiscal health of the nation. This puts the US rating at risk for a downgrade. However, credit rating agencies may decide to wait and see what emerges from the subsequent talks. There is an implicit new cliff at the end of February related to the sequester and to the expected exhaustion of extraordinary measures related to the debt ceiling. This date is expected to be used by Republicans as leverage for spending cuts. President Obama has already signaled that a new round of spending cuts those related to the sequester as well as entitlement spending will have to be matched by additional revenue increases. Therefore entitlement and tax reform are likely to be at the center of discussions over the next two months.
And recall from Moody's in September:
Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the US government's Aaa rating and negative outlook, says Moody's Investors Service in the report "Update of the Outlook for the US Government Debt Rating."
If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable, says Moody's.
If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to Aa1.
Moody's views the maintenance of the Aaa with a negative outlook into 2014 as unlikely. The only scenario that would likely lead to its temporary maintenance would be if the method adopted to achieve debt stabilization involved a large, immediate fiscal shocksuch as would occur if the so-called "fiscal cliff" actually materializedwhich could lead to instability. Moody's would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook.
[Excerpt]
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Next Comes The US Downgrade | ZeroHedge
