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Entries in Rating (3)

Tuesday
Aug022011

Moody's and Fitch Affirm AAA US Rating

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- U.S. stocks continued to slide Tuesday in part on concerns about the global economy, before Moody's affirmed its AAA rating on U.S. sovereign debt but lowered its outlook to "negative." Earlier in the day, Fitch Ratings also affirmed its AAA rating. Economists are now waiting to see if Standard and Poor's will follow suit or downgrade the nation's credit rating.

The Dow Jones Industrial Average dropped 266 points, or 2.19 percent, to 11,867 at the end of the day, while the S&P 500 fell for the seventh straight day, down 2.56 percent to 1,254. It's the S&P's longest slump since 2008.

On Tuesday, the Senate passed an agreement to raise the debt ceiling and avoid a default on U.S. debt, following passage in the House on Monday evening.

"The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2-1.5 trillion by yearend have virtually eliminated the risk of such a default, prompting the confirmation of the rating at Aaa," Moody's stated in a report.

Moody's assigned negative outlook to its rating, saying it could downgrade the U.S. if fiscal discipline weakens in the coming year, further "fiscal consolidation" does not take place in 2013, the economic outlook "deteriorates significantly," or there is an appreciable rise in the government's spending "over and above what is currently expected."

Fitch Ratings confirmed its AAA rating for United States debt over the short-term, but warned of more tough choices coming soon.

"While the agreement is clearly a step in the right direction, the United States, as in much of Europe, must also confront tough choices on tax and spending against a weak economic back drop if the budget deficit and government debt is to be cut to safer levels over the medium term," Fitch said in a statement.

Before Moody's and Fitch's reports were released, traders were focused on a morning report which showed American consumers were spending less during June, the biggest one month drop since 2009.

Copyright 2011 ABC News Radio

Thursday
Jun022011

Obama Administration, Republicans Respond to Moody’s Warning

Medioimages/Photodisc/Thinkstock(WASHINGTON) -- Moody's Investors Service on Thursday threatened to put the U.S. credit rating under review for a possible downgrade if the White House and Congress fail to make progress on increasing the debt limit in the coming weeks, “due to the very small but rising risk of a short-lived default.”

The agency said that the outcome will depend on how negotiations on deficit reduction proceed.

”A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the AAA rating,” read the company press release.

Moody’s added that its analysts did not anticipate this process -- of the White House and Congress coming to an agreement on deficit reduction while agreeing to raise the detail ceiling -- being so difficult.

“(T)he degree of entrenchment into conflicting positions has exceeded expectations,” the Moody’s statement said. “The heightened polarization over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody's will place the rating under review.”

The Obama administration said that the Moody’s threat backs its position.

Mary Miller, assistant secretary of the Treasury for Financial Markets, said in a statement that the move “simply underscores the need for Congress to move quickly to ensure that the US can meet all of its obligations, while continuing to work on a consensus approach towards long term fiscal balance."

Republicans argued that the threat backed their position since much of the report focused on using this opportunity to get significant deficit reduction.

"This report reinforces the point Republicans have been making all year: an increase in the debt limit without major spending cuts will hurt our economy and destroy jobs,” said House Speaker John Boehner, R-Ohio, in a statement. "This report makes clear that if we let this opportunity pass without real deficit reduction, America’s financial standing will be at risk.  A credible agreement means the spending cuts must exceed the debt limit increase.  The White House needs to get serious right now about dealing with our deficit and debt."

Copyright 2011 ABC News Radio

Thursday
Jun022011

Moody's Will Review US Credit Rating if No Debt Limit Progress

Hemera Technologies/Thinkstock(NEW YORK) -- In a release Thursday, the Moody's ratings agency said it would put the U.S. credit rating under review if Congress and the Obama administration don't make progress on increasing the debt limit. Treasury is currently posting a U.S. total debt at $14,344,668,281,211.01 -- well above the $14.294 trillion limit, thanks to some "borrow Peter/pay Paul" moves with Federal employee retirement accounts.

"If the debt limit is raised and default avoided, the AAA rating will be maintained," says the press release. “However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the AAA rating."

Moody's says the increased political "polarization" over increasing the government's statutory debt limit has increased the chances that Uncle Sam will miss some interest payments -- a default in the parlance of Wall Street.

They put out three scenarios which might play out:

"1. The likelihood that Moody's will place the US government's rating on review for downgrade due to the risk of a short-lived default has increased. Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely. The Secretary of the Treasury has indicated that the government will have to drastically reduce expenditure sometime around August 2 if the debt limit is not raised; the initiation of a rating review would precede this date.

2. If a debt-ceiling-related default were to occur, Moody's would likely downgrade the rating shortly thereafter. The extent of and length of time before a downgrade would depend on how factors surrounding the default affect the government's fundamental creditworthiness, including (a) the speed at which the default were cured, (b) an assessment of the effect of the default on long-term Treasury borrowing costs, and (c) measures put in place to prevent a recurrence. However, a rating in the AA range would be the most likely outcome. Any loss to bondholders would likely be minimal or non-existent, as Moody's anticipates that a default would be cured quickly.

3. If default is avoided, the AAA rating would likely be affirmed after any review. Whether the outlook on the rating would be stable or negative would depend upon whether the outcome of the negotiations included meaningful progress toward substantial and credible long-term deficit reduction. Such reduction would imply stabilization within a few years and ultimately a decline in the government's debt ratios, including the ratio of debt to GDP."

Copyright 2011 ABC News Radio







ABC News Radio