U.S., U.K. Move Closer to Losing Rating, Moody?s Says (Update1) - Bloomberg.com
I hope they downgrade the credit rating. The government needs a serious reality check on their endless spending.
If lenders lose faith in the US government, so be it.
March 15 (Bloomberg) -- 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 Moodys 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 Moodys in London, said in a telephone interview.
Under the ratings companys 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, Moodys 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.
The pound fell against the dollar and the euro for the first time in three days, depreciating 0.8 percent to $1.5090, while the dollar index snapped a four-day drop, adding 0.3 percent to 90.075.
The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates, Moodys said.
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, Moodys said.
U.K. Debt Service
The U.K. is likely to spend 7 percent of revenue servicing debt this year and 9 percent in 2013, rising to almost 12 percent under the adverse scenario, Moodys said.
Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending. The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band.
Those economies have been caught in a crisis while they are highly leveraged, Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. They have to make the required adjustment to stabilize markets without choking off growth.
The U.S. would be the most affected under the adverse scenario, as the only country that would face a downgrade, Cailleteau said. The companys baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years, he said.
I hope they downgrade the credit rating. The government needs a serious reality check on their endless spending.
If lenders lose faith in the US government, so be it.