Debt limit row, government shutdown unlikely to hit U.S. rating: Moody's

NEW YORK Tue Sep 24, 2013 9:53am EDT

A Moody's sign on the 7 World Trade Center tower is photographed in New York August 2, 2011. REUTERS/Mike Segar

A Moody's sign on the 7 World Trade Center tower is photographed in New York August 2, 2011.

Credit: Reuters/Mike Segar

NEW YORK (Reuters) - An impasse over the U.S. government's debt ceiling would be worse for financial markets than a government shutdown, but neither is likely to hurt the U.S. sovereign credit rating, Moody's Investors Service said on Tuesday.

Moody's expects the United States will avoid a shutdown and increase the debt limit, the rating agency said in a report.

But failure to lift the cap on what the government can borrow could "theoretically affect all categories of government spending, including debt service."

Nevertheless, a debt ceiling impasse and a government shutdown are unlikely to affect the U.S. sovereign rating, a Moody's analyst told Reuters, because the agency is focused on the long-term debt outlook.

"At this time we don't see that (rating cut) as a consequence of these short-term events," said Steven Hess, Moody's lead U.S. sovereign credit analyst.

"The rating is based more on the long-term outlook for the debt, rather than what we think will be short-term events," Hess added.

Moody's also expects the United States to keep paying interest on Treasuries in the event of a debt ceiling standoff, Hess added.

"The U.S. Treasury bond is the benchmark of the world's financial market," Hess said. "To default on that would create a global financial problem."

Congressional authorization for the government to spend money runs out at the end of the fiscal year on September 30, unless Congress passes a "continuing resolution" to keep the government running.

Some Republican lawmakers are threatening to stall the bill in an effort to scuttle President Barack Obama's signature healthcare law.

The government has been scraping up against its $16.7 trillion debt limit since May but has avoided defaulting on any bills by employing emergency measures to manage its cash.

The Treasury is expected to run out of borrowing options around mid-October. Raising the debt limit requires congressional approval.

Standard & Poor's cut the United States' rating from AAA to AA-plus in August 2011 during a previous round of debt ceiling debates.

Moody's rates the United States Aaa with a stable outlook. Fitch rates the country AAA with a negative outlook.

(Reporting by Luciana Lopez Editing by W Simon, James Dalgleish and Chizu Nomiyama)

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Comments (3)
flashrooster wrote:
No one wants to say it, but we need to increase revenue by raising taxes. Then we need to decrease our military expenditures. Those would be the 2 steps we could take that would do the most good with the least amount of disruption. But that’s the smart thing, therefore, it won’t be done. Why should an entity h_ll bent on suicide care about doing the smart thing? Our country’s future is bleak and we Americans deserve it. It’s unlikely that the US will ever fully regain its sanity. Certainly no time within the next few generations.

Sep 24, 2013 10:19am EDT  --  Report as abuse
jrj906202 wrote:
What debt limit?They have been raising it for years.Might as well just dump it.What we need is massive cuts in theft programs(AKA transfer programs).We can’t even pay for,badly needed,infrastructure,with so many “entitled” Americans,sucking on the govt teat.Morality continues declining,greed soars,causing bankruptcy,for our once great country.

Sep 24, 2013 11:25am EDT  --  Report as abuse
BigMak wrote:
I never really bid into the whole republican democrat thing but let me reminisce and think – last I remember Bill Clinton had our country in shape, not sure if we was at a surplus because I was less interested in politics before computers became quick enough to load pages upon sites without a problem.

What happened following him to create such a ruckus ?????? A little easy to see WHEN it occured but we just never knew they was continuing to spend enormous amounts on monitoring our telecommunications illegally regardless of terrorism concerns, just cause, etc. The media reports as of lately are even more interesting with Bush and Obama in pictures together and both defending each other like two guilty dogs.

Sep 24, 2013 1:13pm EDT  --  Report as abuse
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