MoodyMoody’s Investors Service said that if there is no progress on increasing the statutory debt limit, it expects to place the U.S. government’s Aaa credit rating under review for a possible downgrade.
“The heightened polarization over the debt limit has increased the odds of a short-lived default,” New York-based Moody’s said in a statement today. “If this situation remains unchanged in coming weeks, Moody’s will place the rating under review.”
I have little disagreement with the possible review and downgrade should U.S. policy makers not reach a timely agreement on the debt ceiling issue. No matter how one slices it, the kind of gridlock necessary to thwart an essential move indicates that U.S. policy makers are unwilling and/or unable to prioritize, much less make the tough decisions that will have to be made if the nation is to be put on a fiscally sustainable path.
I still expect an agreement. But fiscal consolidation will be modest. The larger consolidation will likely be expressed in terms of goals and/or targets for which policy specifics will not have been designed.