Moody's Keeps United States' AAA Rating
Moody's Investors Service announced Wednesday that despite the supercommittee's inability to reach a debt-reducing deal, it would leave the United States' top-notch credit rating intact.
"While the supercommittee failure was seen as a major event on Capitol Hill, Moody's said its dissolution does not substantially change America's fiscal math. The panel failed to come up with its own plan to cut at least $1.2 trillion from the deficit, but now automatic cuts of that same amount are set to take effect in 2013.
"If the supercommittee had managed to "go big" and come up with a plan exceeding its mandate, it would have been a positive for the nation's rating, but 'its failure to do so does not decrease the amount of deficit reduction already legislated,' Moody's said.
"The agency added that, while the makeup of the trigger cuts could be altered without significantly affecting the nation's credit, major efforts to reduce or eliminate those cuts could have 'negative rating implications.'"
Just a bit of context: During the debt ceiling negotiations congress created a supercommittee to find about $1.2 trillion in savings over the next 10 years. This week, the supercommittee announced it could come to a bipartisan agreement, which under current law triggers automatic cuts — half from the defense budget, half from the domestic budget.
But as our friend Liz Halloran reported for NPR, there's already talk that Congress could rewrite the legislation to stop those automatic cuts.
That's what Moody's is warning against. Here's how some analysts see it, according to Dow Jones:
"The big worry is whether members of Congress will soften the initial rules" of the law that was passed in August and weaken the automatic spending cuts, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. Political bickering and any potential push to weaken the $1.2 trillion plan, even if it doesn't pass through Congress, could be enough to trigger a downgrade, he said.
That's because it would imply that over the life of the plan, "Congress doesn't have the will to get it through," LeBas said. S&P said in August when it first downgraded the U.S. that political fighting was one of the primary reasons for the downgrade. It said it was leery of the government being able to come to a consensus about broad, sweeping deficit reduction plans.