Moody's Warns the U.S. on Partisan Gridlock

Rarely has a warning from a ratings agency been so thinly veiled as Tuesday’s message from Moody’s Investors Service.

In its “Update of the Outlook for the U.S. Government Debt Rating,” Moody’s noted the United States’ coveted “Aaa” sovereign credit rating, now in a “negative” outlook category, might take a hit and see a downgrade if increasingly partisan lawmakers continue their failings to work together on budget and debt issues. among others.

“Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the U.S. government's Aaa rating and negative outlook,” said the Moody’s report. “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. If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to Aa1.”

Moody’s added the U.S. is unlikely to keep a “Aaa” rating if it can’t convince the agency with its actions to change its “negative” outlook setting.

During an FCIB members-only teleconference this week with FCIA Vice President/International Economist Byron Shoulton, he noted that getting Democrats and Republicans to work together was of paramount importance.

“(Last year’s) downgrade, while controversial, was a necessary signal that needed to be sent,” he told FCIB members. “Until opposing political ideology accept that compromise is a must, recovery will be difficult in the U.S.” He added that the political gridlock and gamesmanship is having a negative impact on everything from bank lending to consumer and business confidence. He suggested that whomever wins the November presidential election would be well served to extend the olive branch to the other party in a hurry.

“Whoever wins the election is going to have to pull out all the stops for financial growth,” he urged.

-Brian Shappell, CBA, NACM staff writer

(Note: For more information on FCIB membership and to gain information on a replay of Shouton's economic outlook, visit

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