Moody’s tries to spell it out slowly for the Washington politicians:
The “limited magnitude” of both debt plans put forward by congressional leaders would not put the nation’s AAA credit rating back on solid footing, Moody’s Investors Service announced Friday. “Reductions of the magnitude now being proposed, if adopted, would likely lead Moody’s to adopt a negative outlook on the AAA rating,” the credit rating agency said in a new report. “The chances of a significant improvement in the long-term credit profile of the government coming from deficit reductions of the magnitude proposed in either plan are not high.”
It added that “prolonged debt ceiling deliberations” have increased the odds of a downgrade, but that the firm is still confident policymakers will avoid a default.
“It remains our expectation that the government will continue with timely debt service,” the firm said.
It also clarified that as far as it is concerned, the nation will only default if it misses an interest or principal payment on U.S. debt, not if it misses payments on other obligations like federal employee salaries or Social Security benefits.
Translation: The Republicans that sold out and put their careers at severe risk of Tea Party challenges in the primaries not only accomplished nothing, but never could have accomplished anything meaningful. If Boehner and Cantor were competent, they would have run their multiplicity of plans past the ratings agency, not just the optimistic and reliably inaccurate Congressional Budget Office.
And as I and many other financially literate economics observers have pointed out, a failure to raise the debt ceiling has ABSOLUTELY NOTHING to do with default, despite the ignorant bleatings of “economists” like Megan McCardle. The mainstream commentators have it backwards again, as it is raising the debt ceiling that makes the prospect of sovereign default more likely, not leaving it in place.