I've been warning about this for a year, since BO went on his spending 
spree....  This is potentially a huge issue...............

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http://www.ft.com/cms/s/0/a82cfe04-10f5-11df-9a9e-00144feab49a.html

Moody’s warns US of credit rating fears
By Michael Mackenzie in New York and Gillian Tett in London

Published: February 3 2010 19:53 | Last updated: February 3 2010 19:53

Moody’s Investors Service fired off a warning on Wednesday that the 
triple A sovereign credit rating of the US would come under pressure 
unless economic growth was more robust than expected or tougher actions 
were taken to tackle the country’s budget deficit.

In a move that follows intensifying concern among investors over the US 
deficit, Moody’s said the country faced a trajectory of debt growth that 
was “clearly continuously upward”.

Steven Hess, senior credit officer at Moody’s, said the deficits 
projected in the budget outlook presented by the Obama administration 
outlook this week did not stabilise debt levels in relation to gross 
domestic product.

“Unless further measures are taken to reduce the budget deficit further 
or the economy rebounds more vigorously than expected, the federal 
financial picture as presented in the projections for the next decade 
will at some point put pressure on the triple A government bond rating,” 
the rating agency added in an issuer note.

This week, the White House forecast a $1,565bn budget deficit for 2010, 
which represents 10.6 per cent of gross domestic product and is the 
highest such ratio of debt to GDP since the second world war.

While the budget gap is forecast to fall to about 4 per cent by 2013, it 
is based in part on economic growth not falling below government 
expectations, Congress agreeing to tax rises and a spending freeze on 
non-security discretionary spending. 

Crucially, projections of the overall debt-to-GDP ratio for the US are 
seen rising from 53 per cent in 2009 to 73 per cent in 2015 and 77 per 
cent by 2020.

Moody’s, however, says this understates the overall US debt level. 

“Using the general government measure, including state and local 
governments as well as the federal government, which is used 
internationally, this ratio would be well over 100 per cent in 2020.”

The issue of sovereign risk dominated many discussions in the Davos 
World Economic Forum last week. While much attention focused on the 
fiscal crisis in Greece, considerable concern was also voiced about the 
outlook for countries such as the US and UK. 

“Everyone has reason to be concerned about the US economy right now and 
the US dollar,” said Tony Tan, deputy head of the Government of 
Singapore Investment group. “We still think that the US economy is the 
most diversified and resilient in the world, but it is going through a 
difficult time.”

At the heart of investor concerns is whether countries such as the US 
with its rising debt burdens has the political will, or the sense of 
consensus, to take decisive measures to cut debt.

Some investors at Davos suggested it might be helpful if the credit 
rating agencies were to step up their threats about a potential future 
downgrade in countries such as the US and UK, since it would force 
politicians to act – and turn the issue into an election topic.

US treasury bonds were relatively steady on Wednesday with the yield on 
the 10-year note rising 3 basis points to 3.67 per cent.

CMPQwk 1.42-21 9999 
Democrats --  The party that penalizes success and rewards failure ...

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