Moody's Says a U.S. Debt Downgrade Is "Not Inconceivable"

December 8, 2009 8:09 AM EST
In a report on Tuesday from Moody's Investors Service, the U.S and U.K. were set apart from other triple-A rated countries as being weaker, calling them "resilient" and "not resistant."

Moody's referred to Canada, France and Germany as resistant, citing that the public finances of these countries are currently in better shape in the report that sought to examine the creditworthiness of the world’s highest rated countries.

The report said that in the worst-case scenario the U.S. could lose its triple-A rating in 2013 if the countries grow slows, interest rates climb and if the government fails to address the national deficit that has substantially grown due to the assistance provided to the financial sector.

"The next year or two will show whether growth potential has been structurally eroded or whether a robust yet sustainable recovery is possible," said Pierre Cailleteau, chief international economist at Moody's.

Cailleteau added that "now the question of a potential downgrade of the U.S. is not inconceivable."

Moody's notes that in the U.S., a "credible fiscal consolidation strategy" will be a necessity to stop debt and associated interest costs from crossing into the ratings agency’s worst-case scenario.

The ratings agency sees the interest-to-revenue ratio in the U.S. to jump to 13 percent by 2012; however the possibility remains that the ratio could rise to its highest since the 1980s according to Moody’s at around 18 percent.

This report on the financial state of the top economic countries will be update each quarter and be referred to as the "Aaa Sovereign Monitor."

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