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Moody’s Warns of U.S. Debt Downgrade – For the 5th Time

September 11th, 2012

09.11.2012 original publish date
01.26.2014 Update research to reflect Moody’s warned 6th time of U.S. credit downgrade

Moody’s Warns of U.S. Debt Downgrade – For the 5th Time

Original article written by Net Advisor

About one year ago, Standard and Poor’s (S&P) downgraded U.S. credit rating due to the lack of government efforts to control spending which has led to unsustainable deficits.

Moody’s Investor Service issued a warning today (PDF) that it may downgrade the U.S. credit rating for the same reasons. U.S. taxpayers should be concerned about how the government is spending money creating record deficits, all with no budget for the last 3 years.

What You Won’t Read in Today’s Moody’s Debt Downgrade Warning. 
The one thing that you probably won’t find in Moody’s debt downgrade warning is that Moody’s has been warning of a potential U.S. debt downgrade for at least the last five years. A quick search found these results.

  • 2009-12-08 “Moody’s U.S. credit warning spooks world markets” (Source: USA Today).
  • 2010-02-04 “US credit rating at risk, Moody’s warns” (Source: The Telegraph.UK).
  • 2011-07-18 “Moody’s warns again on U.S. debt” (Source: CNN).
  • 2012-09-11 “Moody’s Warns on U.S. Debt Rating Ahead of Fiscal Cliff” (Source: Wall Street Journal).
  • 2013-05-20 “U.S. Faces Downgrade in 2013 Without Budget Deal, Moody’s Warns” (Source: Bloomberg).

 Moody’s Should be Sending Out Press Releases Like This:

“We may downgrade U.S. debt.”

“We’re serious this time.”

“We are really thinking about doing it.”

“I”m warning you… (again).”

“No seriously, this time – I really mean it.”

“Do I have to repeat myself?”

“Are you listening to me???”

Warning about doing something for five years and still not following though begs the question. Why is Moody’s all talk and no action?

Political Conflict?
Moody’s has been about as serious to place a downgrade on U.S. debt, as the Obama government has been serious about cutting the deficit.

It is a well-established fact that Moody’s Chief Economist, Mark Zandi is a huge Obama supporter. Zandi is also the co-founder of economy.com where Moody’s purchased the website in 2005 for $27 million. Regardless of his political associations, we’re not faulting Dr. Zandi for supporting the Obama Administration. What we are questioning is he doing his job independently from his political views?

President Obama said in 2009 that he would cut the deficit in half and that we cannot sustain higher deficits and pass them along to future Administrations.

Obama’s Plan to “Cut the Deficit in Half” Actually Increased the Deficit by 50%
In 2011, President Obama said he would cut $4 Trillion off the deficit but over 12 years. I wrote a 5-part article series tracking what the government was doing about the deficit. In the end, government agreed to keep growing the deficit.

Government ended up “cutting” a whole $2 Billion from short-term spending – a trivial few minutes of interest off the debt, and cut $38 Billion from long-term spending (report).

This was really a joke. The fact is government didn’t cut spending at all, it increased spending. Just over the last three years, the U.S. National Debt has increased by over 50% or $5 Trillion. That’s more debt than the Bush Administration racked up over 8 years (report).

With a 50% increase in the national debt in just three years, Moody’s warns again about lowering the U.S. credit (debt) rating by one notch.

The stock market was rocked in the past on one of these warnings. Today, the financial markets where not phased a bit as the Dow closed up +69.

Moody’s chief economist Mark Zandi claims that the GOP’s budget proposed last year (2011) would shed 700,000 jobs from the economy. Dr. Zandi’s argument assumes that, ‘without government spending we just can’t have job growth.’ Hogwash. The Obama Administration spent $787 Billion and it produced zero jobs and we have a more true unemployment rate of 15%. Zandi was one of the “architects” to the 2009 Obama $787 Billion stimulus plan.

One doesn’t need a Ph.D. in economics to have commence sense. If government cuts spending, that does not mean that suddenly, Walmart (or whomever) will begin laying people off.

Center on Budget and Policy Priorities Executive Director Bob Greenstein (left), Moody’s Chief Economist, Mark Zandi (center), and President Barack Obama attending a “fiscal responsibility” summit in 2009. (Photo Credit: White House Photo 02-29-2009, Public Domain).

More Zandi’s False Economic Rhetoric.

“The Obama administration has shown significant spending restraint in its recent budget…”

— Mark Zandi, Chief Economist, Moody’s (Source: Economy.com)

HA! What part of $5 Trillion of debt in 3 years is this Ph.D economist missing? Since Zandi’s comments, not a single Democrat, Republican or Independent has supported the Obama Budget in 2012 or 2013 (Please see topic #[15] in this report).

The U.S. deficit is a problem. The source of the problem is the free spending members in Congress supported by the current Administration. This is an election issue as it affects everyone in the USA. Unfortunately, this issue is being avoided right now until AFTER the November election.

1. The likelihood that there will be a budget for 2013 is less than 1%.

2. The likelihood that Congress addresses the deficit will be 100%; but not until the last minuet when they realize they have ran out of credit card lines from China. In other words, Congress can’t legally spend any more money without passing a new law authorizing such, and a president to sign it.

3. The likelihood of how Congress solves the current deficit problem will be to raise the debt ceiling again = 100%. Congress will likely issue another “Stop Gap” measure (passing a law to increase the deficit in the short run, until they pass a budget. With no budget for the last 3 years, means Congress just keeps writing laws to increase the deficit to whatever they want.

It is evident by its own actions or in-actions for the last 3 years that the Obama Administration and the Senate has no interest in lowering the deficit. The Obama Administration has instead increased the deficit by over $5 Trillion with no job growth. It is also evident by its own inaction for the last 5 years that Moody’s has also been all talk when it comes to its U.S. credit downgrade.

If the U.S. does not get their fiscal house in order soon, the risk in the future will be higher taxes for everyone  – not just the “wealthy Americans.” There is not enough wealth that the Administration can confiscate or tax to make a dent in the deficit.

The U.S. could face a financial crisis unlike we have never seen in history, where sudden and massive austerity could be the norm in the future. This is happening all over Europe right now (Source: BBC News).

This is not a conspiracy argument. It is not likely to happen next year, or even a few years from now or maybe 10 years from now – but it could happen sooner than later. What we need to understand is that we are on a fast moving path of severe and unsustainable fiscal issues. Standing on a soapbox chanting ‘we might downgrade the U.S. deficit’ for the last five years isn’t motivating anyone. Nor is making years of repeated speeches, chanting how were going to cut the deficit, while the other hand is borrowing and spending money producing no positive results.


Credits: Moody’s logo is a registered trademark of Moody’s Investor Services, Inc., or their respective entity.  White House Photo (center page) 02-29-2009, Public Domain. Video: Associated Press.

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