America on negative credit watch

Last Updated on Tuesday, 30 November 1999 00:00 Friday, 15 July 2011 21:45

By: fanatic

Moody's rating agency has warned that the US may lose its AAA credit rating in a few weeks if politicians fail to agree to increase the country's legal borrowing limit. The country had been placed on negative watch by the agency on 18th April, meaning a downgrade is possible though not definite.

America has held its AAA rating since 1917 and suffered only one review in 1995.

A statement issued by Moody's said it saw a "rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations."

America faces a growing crisis as Democrats and Republicans play politics with a spiralling budget deficit. Last year, the deficit was $1.29 trillion and the US Treasury Department has said it will have to prioritise payments if the debt ceiling is not raised by August 2nd.

Even if the deficit ceiling is raised, Moody's also said that it does not mean America will retain its AAA rating. "The outlook assigned at that time to the government bond rating would very likely be changed to negative at the conclusion of the review unless substantial and credible agreement is achieved on a budget that includes long-term deficit reduction," the agency said.

Chinese rating agency Dagong was quick in on the act, also putting US debt on a negative watch. "Dagong will downgrade the US sovereign ratings if there is no substantive improvement in its repayment ability and willingness within the period of observation," the firm said in a statement. China is estimated to hold over $1.5 trillion of US debt, the biggest holder in the world.

Republicans are so far refusing to increase the $14.29 trillion debt ceiling without spending cuts, and are also refusing tax increases that Democrats want to see as part of any plan to cut the deficit.