Friday, May 7, 2010

U.S. May Soon Lose AAA Credit Rating

The United States is precariously close to losing its AAA credit rating, according to Congressional Budget Office projections. Jed Graham of Investor's Business Daily reported:

In the wake of the financial crisis and recession, Moody's Investors Service has brought new transparency to its sovereign ratings analysis — so much so that 2018 lights up as the year the U.S. could be in line for a downgrade if Congressional Budget Office projections hold.

The key data point in Moody's view is the size of federal interest payments on the public debt as a percentage of tax revenue. For the U.S., debt service of 18%-20% of federal revenue is the outer limit of AAA-territory, Moody's managing director Pierre Cailleteau confirmed in an e-mail.

Under the Obama budget, interest would top 18% of revenue in 2018 and 20% in 2020, CBO projects.

But under more adverse scenarios than the CBO considered, including higher interest rates, Moody's projects that debt service could hit 22.4% of revenue by 2013.

So, what is the Obama administration doing about it? Piling on more debt, of course! Sure seems like a great time to create an expensive new medical entitlement program, doesn't it?

Hat tip to James Pethokoukis.

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