Moody’s places US debt rating on review

July 14th, 2011 - 11:41 am ICT by IANS  

New York, July 14 (IANS/EFE) Moody’s Investors Service announced Wednesday that it has placed the US debt on review with an eye toward possibly downgrading it, given the possibility that Congress may not be able to reach an accord to raise the debt limit.

US government bonds currently enjoy the highest rating, Aaa.

In explaining the decision, Moody’s cited “the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations”.

The White House and Republicans in Congress are conducting intensive negotiations to try and raise before Aug 2 the debt ceiling this country is authorised to have and which is currently $14.29 trillion.

The US reached the limit May 16, but the Treasury used spending and accounting adjustments which, combined with better tax collection than expected, have permitted it to continue operating without yet having any impact on government activities.

In its warning Wednesday, Moody’s said that it had also placed “on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks”.

It added that the downgrade will be made if there is non-payment of the principle or interest on current government obligations, and it emphasised that “there is a small but rising risk of a short-lived default”.

“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,” the rating agency said.


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