Moody’s Threatens US Downgrade if $1.2 Trillion Deficit Cuts Not Implemented

Moody’s has warned U.S. that if the $1.2 trillion discretionary spending cuts to begin in 2013 are reduced there would be “negative implications” for their credit rating.
The failure of the congressional super committee to reach a deal on deficit reduction this week has triggered deficit reductions amounting to $1.2 trillion to take place over ten years from 2013. Moody’s did not change the US Aaa rating after the failure of the committee but it has a “negative outlook” on the country’s debt.
In an interview Steven Hess, senior credit officer at Moody’s, said today “If they were to eliminate that process or reduce that amount significantly, that would definitely be a negative for our thinking about the rating. A change in that would increase deficits and therefore the debt over time and would definitely be negative.”

Standard & Poor’s said that after it had downgraded the U.S. on Aug. 5 to AA+, it was not necessary to downgrade it again after the super committee failed to reach a deal. Nearly half of the $1.2 trillion of the automatic reductions will be in the field of defense spending but Republicans say that the defense cuts should be replaced by cuts in other fields and they will bring legislation to prevent defense spending cuts.
President Obama has, however, pledged to veto any efforts to thwart the spending reductions.

Read more: Moody’s Threatens US Downgrade if $1.2 Trillion Deficit Cuts Not Implemented