Double-Dip or Downgrade?: Moody's Tells the U.S. 'Cut or Be Cut'

Double-Dip or Downgrade?: Moody's Tells the U.S. 'Cut or Be Cut'

by Derek Thompson

No matter what the agencies say, we need growth. Then deficit reduction. In that order.

Before January 1, Washington has two choices. The first option is to do nothing. The Bush/Obama tax cuts would expire. The Budget Control Act would cut spending, as scheduled. In this scenario, the U.S. economy could fall into recession.
The second option is to do something, anything, to avoid the so-called "fiscal cliff." That might include extending the tax cuts in some form, pushing off spending cuts, or enacting some combination of the two. But this scenario has its own downside: Moody's said yesterday it would downgrade our credit rating from a sterling AAA if the agency isn't properly convinced of our seriousness to cut the deficit.
In other words: The choice might be between double-dip and downgrade. Here's the Moody's threat, verbatim:
If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable, says Moody's. If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to AA-1.http://www.theatlantic.com/business/archive/2012/09/double-dip-or-downgrade-moodys-tells-the-us-cut-or-be-cut/262274/