Moody’s Investors Service announced Saturday that despite the months of negotiating and the multiple plans both Democratic senators and house representatives and Republican senators and house representatives have proposed, neither side has a plan that will prevent the United States of America from defaulting, and thus leading to them having to lower the nation’s Aaa rating to a downgraded Aa credit rating.
Moody’s informed the public that the limited magnitude of both current plans will force them to have to consider a negative outlook for the United States government and proceed with the credit reduction to Aa. They added that the current plans magnitude do not improve the nation’s long term credit outlook, leading them to this conclusion.
On a bit of a positive note, Moody’s Investor Services mentioned that despite the long time spent debating a U.S. Debt Plan to raise the deficit ceiling, they do not necessarily believe a default is imminent. The length and nature of the debate does suggest a lowered credit rating however, which will have similar effects as a default, raising interest rates, stock markets taking a hit, and a negative outlook on the economy.
By Moody’s Investor Service’s standards, the United States will only default if it fails to pay a principal or interest payment to its debtors, not if it fails to pay its payments to the United States public. That means that social services, social security, employee salaries and medical coverage are not safe if the government seeks to simply prevent default by Moody’s standards.
Obama officials have given the government an August 2nd deadline to raise the debt ceiling to prevent a default, however many Republicans have long said that they could go days, weeks and possibly months past that date before defaulting by redirecting funds to payments while cutting spending elsewhere. Democrats have dismissed this for some time, however Moody’s Investor Services latest report confirms that point saying that the United States could postpone a debt default for some time.
Moody’s would prefer the government pass a bill that protects the debt levels for a minimum of six months to allow investors in the United States to continue receiving their payments without having to go through another period such as it has been since May when the last debt ceiling was met. In the chance that the government defaults, but quickly remedies the situation, causing only slight losses to investors, the rating would drop to Aa. If investors lose more heavily, an even lower rating is possibly and highly likely.