Moody's suggests U.S. eliminate debt ceiling

NEW YORK Mon Jul 18, 2011 10:33am EDT

An elderly man walks past The National Debt Clock, which displays the current United States gross national debt and each American family's share, on a wall in midtown Manhattan, in New York July 13, 2011. REUTERS/Brendan McDermid

An elderly man walks past The National Debt Clock, which displays the current United States gross national debt and each American family's share, on a wall in midtown Manhattan, in New York July 13, 2011.

Credit: Reuters/Brendan McDermid

Related News

NEW YORK (Reuters) - Ratings agency Moody's on Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders.

The United States is one of the few countries where Congress sets a ceiling on government debt, which creates "periodic uncertainty" over the government's ability to meet its obligations, Moody's said in a report.

"We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report.

The agency last week warned it would cut the United States' AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement.

Moody's said it had always considered the risk of a U.S. debt default very low because Congress has regularly raised the debt ceiling during many decades, usually without controversy.

However, the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk," Hess said.

Stepping further into the heated political debate about U.S. debt problems, Moody's suggested the government could look at other ways to limit debt.

It cited Chile, widely praised as Latin America's most fiscally-sound country, as an example.

"Elsewhere, the level of deficits is constrained by a 'fiscal rule,' which means the rise in debt is constrained though not technically limited," Moody's said, adding that such rule has been effective in Chile.

It also cited the example of the Maastricht criteria in Europe, which determines that the ratio of government debt to GDP should not exceed 60 percent. It noted, however, that such a rule is often breached by the governments.

In the United States, Moody's said the debt limit had not effectively curbed the rise in government debt because lawmakers regularly raise it and because that limit is not related to the level of expenditures approved by Congress.

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (44)
threeRivers wrote:
Oh so it was Moody’s that was bluffing!

Jul 18, 2011 4:47am EDT  --  Report as abuse
pbt777 wrote:
I am so tired of these globalists telling us what to do. We need to put an end to NAFTA, place tariffs on imports, lower corporate taxes to encourage business to come back to the U.S. and keep those businesses here that are looking to move offshore. We need to de-regulate everything Obama has regulated, do away with Obamacare. Jail his entire administration, and we will be at a starting point.

Jul 18, 2011 6:12am EDT  --  Report as abuse
minipaws wrote:
I suggest a class action lawsuit against the US Government for printing money and devaluing the dollar that all Americans have worked so hard for.

Jul 18, 2011 7:15am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.