Moody's: Obama budget a plus but adoption unlikely

WASHINGTON Mon Sep 26, 2011 11:54am EDT

President Barack Obama holds a news conference in the briefing room of the White House in Washington, July 11 2011. REUTERS/Kevin Lamarque

President Barack Obama holds a news conference in the briefing room of the White House in Washington, July 11 2011.

Credit: Reuters/Kevin Lamarque

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WASHINGTON (Reuters) - President Barack Obama's deficit reduction plan would be positive for the United States's credit ratings but chances of its implementation are "extremely low," Moody's Investors Service said on Monday.

Obama's plan is the latest in a series of proposals that, together, demonstrate that substantial deficit reduction is the goal of the administration and the leadership of both political parties. But the differences between Republicans and Democrats mean that "none of the plans so far presented will be adopted," Moody's said in a report.

That echoes one of the main arguments used by rival Standard & Poor's in stripping the United States of its top AAA credit rating in August.

Moody's has kept its United States ratings at Aaa with a negative outlook.

Lack of political consensus is not the only problem, however, for U.S. deficit reduction efforts. The other main obstacle is the country's weakening growth outlook.

"All of those plans would likely result in a declining debt trajectory over the coming decade if underpinned by reasonably steady economic growth," Moody's analyst Steven Hess wrote in the report.

"We think that economic growth in the U.S. will remain well below potential through at least 2012 and will be below growth rates assumed in all of the plan's projections," he said.

The International Monetary Fund last week cut its economic growth estimates for the United States by about one percentage point for this year and next year, to 1.5 percent and 1.8 percent, respectively. Many economists fear the U.S. economy could fall back into recession if the euro zone debt crisis spreads further.

The next step in the U.S. debt saga will be the recommendations of a bipartisan committee that was tasked to find some $1.5 trillion in deficit reduction measures that would need to be approved by Congress.

Obama's budget proposal would result in an additional $1.5 trillion to $1.8 trillion in deficit reduction, Moody's said.

"The president's last proposal aims to prompt the committee to broaden its purview and recommend a larger deficit reduction than the minimum included in the Budget Control Act, but partisan differences may prevent this."

(Editing by Leslie Adler)

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Comments (8)
DrJJJJ wrote:
You can’t have it both ways folks! There is no substitute for deep cuts and it will slow our economy! Taxes will need to rise too (was there any doubt-be honest)! Education and defense will need to be slashed and entitlements too (can’t pay teacher $100K/yr with a 50% grad. rate, etc)! Make the mental adjustment and hurry, you’re gambling with our kids future/quality of life! Perhaps we come out a better country in a decade or so! A liberal/progressive vision without a way to pay for it is dangerous now and honesty is the best policy!

Sep 26, 2011 11:28am EDT  --  Report as abuse
BlueOkie wrote:
Capital is leaving socialism and looking for a home with lower regulation. Probably won’t get that under this President

Sep 26, 2011 12:00pm EDT  --  Report as abuse
BlueOkie wrote:
Not only DOD and DOE but energy and EPA as well need big cuts. We need a energy policy not a environmental one. Cut gov’t by 20% and see what you really miss. The stuff like parks that should be free have fees. Stop entitlements that haven’t been earned and drug test people. No more czars without Senate approval! Level K-Street

Sep 26, 2011 12:03pm EDT  --  Report as abuse
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