Wednesday, August 3, 2011

Negative Outlook on Uncle Sam

Said Moody's: "Our negative view on
The debt deal you voted anew on
Ponders revenue ruts
Caused in part by the cuts
Which we anyway doubt you'll come through on."

In announcing its negative outlook on the Aaa rating of US sovereign obligations, the Moody's rating agency cited the untested framework set up by the debt ceiling bill passed by Congress and signed into law yesterday by President Obama. Moreover, said Moody's, Congress may lack the fiscal discipline to make the hard decisions required later this year to narrow the deficit by another $1.5 trillion over the next ten years. Finally, the rating agency pointed out that federal revenues may not rise as fast as government forecasts assume. Of course, in the feedback loop between fiscal policy and the economy at large, deficit cutting can contribute to a slower economy.

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