Wednesday, July 13, 2011

Moody's Reviewing Federal Government's Credit Rating

Moody's Investors Service is reviewing the United States AAA ratings. Interest rates will increase if the Treasury Department loses its AAA rating.

Moody's reasons for doing the credit review.

The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes.

As such, there is a small but rising risk of a short-lived default.

Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate. However, because this type of default is expected to be short-lived, and the expected loss to holders of Treasury bonds would be minimal or non-existent, the rating would most likely be downgraded to somewhere in the Aa range.

Fact: if the federal government defaults will pay more to bondholders. The federal government will go into greater debt. The Republicans negotiation position of bringing the federal government to the brink of default is not a fiscally conservative position. The current Republican Party position is fiscal nihilism.

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