News HeadlinesThe United States may lose its top-notch credit rating in the next few weeks if lawmakers fail to increase the country's debt ceiling, forcing the government to miss debt payments, Moody's Investors Service warned Wednesday.
Moody's is the first of the big-three rating agencies to place the United States' Aaa rating on review for a possible downgrade, which means it is close to cutting its rating.
IMO, this move is wholly justified. The U.S.--intense finger-pointing and attempts at blame-shifting by all parties notwithstanding--is acting in a fashion that suggests that it is not a AAA state. Outcomes, not excuses, matter. As such, the U.S. bears, and ought to bear, the burden of proving that it deserves to maintain its AAA rating. To do so, I believe the debt ceiling needs to be raised with a modest fiscal consolidation package.
Afterward, over the next 6-12 months it has to adopt a credible fiscal consolidation strategy and it must put in place mechanism to address its present political dysfunctionality. The former would show that it is addressing is credit-related issues. The latter would provide a degree of confidence that the U.S. would have a reasonable prospect of implementing and sustaining a credible fiscal consolidation program. Failure to raise the debt ceiling in a timely fashion and then failure to demonstrate significant progress on the other two elements 6-12 months afterward should lead to a credit downgrade to a level that better reflects its actual risk.