Moody's Issues Credit Warning to U.S. Amid Political Wrangling Over Debt Limit

Moody's warned the US government earlier today that it's credit rating could be downgraded within the next few weeks if Washington can not reach a deal on increasing the nations borrowing limit.

Published June 02, 2011
FOX NEWS

Leading investment agency Moody's warned the U.S. government Thursday that its sterling credit rating could be downgraded in the next few weeks if there is no progress in Washington on reaching a deal to increase the nation's borrowing limit.

Moody's Investor's Service said it would place the government's Aaa rating under review for a possible downgrade due to the "very small but rising risk" of a short-lived default if the White House and Republican leaders can't agree on raising the nation's debt ceiling, which has already hit $14.3 trillion.

Moody's announcement followed the lead set by S&P, which announced in April that it was downgrading the U.S. credit outlook to negative over the nation's mounting debt.

The news was just the latest sign of the massive financial problems facing the nation as the economy's recovery sputters. It also gave Republicans fresh ammunition to use against President Obama, whose 2012 re-election hopes likely hinge on how many Americans can find work in the next year.

"Today's announcement from Moody's simply reinforces the position already announced by S&P and a clear bipartisan majority in the House of Representatives," said Rep. Dave Camp, R-Mich., chairman of the Ways and Means Committee. "House Republicans have put forward bold solutions to deal with this crisis and it is time for the president to come to the table and join us in talking about specific policy solutions."

"This report makes clear that if we let this opportunity pass without real deficit reduction, America’s financial standing will be at risk. A credible agreement means the spending cuts must exceed the debt limit increase. The White House needs to get serious right now about dealing with our deficit and debt," added House Speaker John Boehner.

The Moody's announcement comes on a wave of bad economic news that has surfaced this week: home prices hit their lowest level in nine years; jobless claims remain stuck at a level that signals weak job growth; manufacturing grew at the slowest pace in 20 months and businesses sharply cut spending in April on computers, machinery and other long-last goods.

The monthly jobs report due Friday is expected to fall way short of expectations. Taken together, the data show the recovery is in serious jeopardy.

On Thursday, White House spokesman Jay Carney objected to claims the economy was on a downward spiral since the longer term trends are positive.

"We don't have a crystal ball," Carney told reporters in his daily briefing.

Carney said that the White House believes it "will have set the table" for long-term growth by addressing deficit reduction in a way that does not "arrest development." That includes investing in research and development, clean energy, education and infrastructure.

"The road out of the dark place we were in when this president took office ... was not going to be smooth every step of the way," Carney said. "We are not there yet. We still have a lot of work to do ... we believe we are headed in the right direction."

Republican leaders met with Obama face-to-face Wednesday over spending policy as a deadline to raise the nation's borrowing limit looms. Democrats followed up with their own presidential powwow on Thursday.

But the parties couldn't be further apart on how to create more jobs. The president and his party want to pump more money into the economy while Republicans want to slash federal spending.

Rep. Steny Hoyer, the No. 2 Democrat in the House, said the nation needs to reduce its debt and deficit but also to strengthen Medicare for seniors. He also said Democrats have a jobs agenda.

"We call it Make it in America," he said. "Not in terms of succeeding but manufacturing it here in Amerca."

Rep. James Clyburn, the No. 3 Democrat in the House, said Medicare must be preserved and taxes must be raised in a "fair and equitable" way.

But House Majority Leader Eric Cantor, who is representing Republicans in the talks led by Vice President Joe Biden, who's currently in Italy, told Fox News that one way to create jobs is to cap taxes at 25 percent on individuals and corporations, which would allow small businesses to grow.

"That's where the jobs come from," he said. "And in fact, it's the startup businesses so our job creators plan focuses on bringing tax rates down for people, putting incentives in place for them to put their money to work to create jobs. And that is something this administration has been somewhat resistant to go along with but in the end, that's what people want us to do. They want a better economy."

Boehner said the White House is standing in the way of an economic rebound and that any increase in the nation's ability to borrow must be accompanied by an equal cut in spending.

"As we told the president and I think we've demonstrated to the American people we're ready to deal with the big challenges that face our country. I hope the president will join us soon."

But Carney shrugged off Boehner's suggestion that he and Obama negotiate directly over deficit reduction. Aug. 2 is the deadline announced by the Treasury Department for the government to raise its borrowing limit or face a credit default.

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