The Wall Street Journal reports that S&P and Moody’s, two of the major credit agencies, are continuing to warn investors, more concerned with fleeing the debt-ridden European financial markets at the moment, that the U.S. has debt problems of its own which may soon lead to a lowering of its credit rating.
Moody’s Investors Service said in a report on Thursday that the U.S. will need to reverse the expansion of its debt if it hopes to keep its “Aaa” rating.
“We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase,” Sarah Carlson, senior analyst at Moody’s, said.
Credit agencies were highly criticised following the financial crisis that their ratings were understating the actual risks involved. This poses a big problem because many investors rely on the ratings of credit agencies to allocate their investments. When ratings are understated this may lead to excessive risk-taking. Moody’s acknowledges that the U.S. has thus far retained its triple-A rating despite its troubling high debt.
These measures of the U.S. debt burden include federal debt to revenue, estimated to average 397% of gross domestic product until 2020. The ratio of interest to revenue, meanwhile, is expected to rise to 17.6% by 2020, nearly double last year’s level. These are “quite high for an Aaa-rated country,” Moody’s said in its report.
Last year in the Spring, IWF’s Carrie Lukas wrote about the Greek financial crisis and bail-out, while highlighting the troubling projections of the U.S. debt increase.
At the end of 2009, our national debt was $7.5 trillion. That means today, each American family’s share of the debt is about $115,000. If this President’s budget becomes law, in ten years our debt will exceed $20 trillion and each family will owe around $200,000. Interest payments will have to quadruple during the next decade. With more of our tax dollars disappearing to debt service, Americans will be paying more and getting less. …
Greece’s problems have become the world’s problems, and therefore the United States’ problems. The international community has pledged aid to Greece, which means that the American taxpayers will face a steep bill.
If 7.5 trillion at the end of 2009 sounded like a big piece to chew on, the current level of U.S. debt is screaming for a Heimlich Maneuver. The U.S. debt is now at 14 trillion! Ladies and Gentlemen, ask yourselves, when worse comes to worse, who will come to America’s rescue?
It is high time that politicians get serious about lowering the debt.