Moody’s Says U.K., U.S. Aaa Ratings Relatively Weaker

By Matthew Brown and Rocky Swift
December 8, 2009

Dec. 8 (Bloomberg) — Moody’s Investors Service said its top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because their public finances are worsening in the wake of the global financial crisis.

The U.S. and U.K. have “resilient” Aaa ratings, as opposed to the “resistant” top ratings of Canada, Germany and France, analysts led by Pierre Cailleteau in London said in a report. None of the top-rated countries is “vulnerable,” or have public finances that are “stretched beyond the point of ‘no return’ to the Aaa category,” New York-based Moody’s said.

The dollar weakened to 88.60 yen, from 89.51 yen, and strengthened to $1.4795 per euro from $1.4827. The pound fell against all 16 most-traded counterparts, dropping to $1.6289, from $1.6446. It weakened to 90.83 pence per euro, from 90.16. U.K. bonds rose, pushing the yield down 8 basis points to 1.08 percent, the biggest drop since Nov. 9.

“There has been a huge increase in debt-to-gross-domestic- product ratios as a result of the crisis,” said David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “It’s right that there should be a lot of attention and pressure on these numbers.”

The U.S.’s debt burden will climb to 97.5 percent of gross domestic product next year from 87.4 percent, the Organization for Economic Cooperation and Development forecast in June. National debt in the U.S. climbed to $7.17 trillion in November. The U.K.’s public debt will swell to 89.3 percent of the economy in 2010 from 75.3 percent this year, according to the OECD…

‘Political Willpower’

The expansion of the U.S. economy won’t be enough for it to make “major progress” in reducing its budget deficit, the ratings company said.

“It’s difficult to drive a big wedge between the U.S. and U.K. in terms of their fiscal outlook,” said Calyon’s Keeble. “The flexibility that Moody’s spoke about isn’t obvious. It’s all a matter of political willpower.”

The entire article is at Bloomberg.

And from Fox Business News:

…The U.S.’s debt as a percentage of GDP is expected to rise to 67% by 2018, the CBO said.

According to Moody’s, the U.S. and other major AAA-rated countries are not at risk and retain the “characteristics necessary for a AAA rating,” but have “lost altitude” in the AAA space.

Austan Goolsbee, a member of the President’s Council of Economic Advisers, disputed Moody’s report, saying that “it’s rather obvious that the U.S. government is not in danger of default.”

“The deficit in the short run is big because we confront the worst economic crisis since 1929,” he said. “In the medium run, the fiscal situation is dramatically better and we need to have fiscal responsibility, but the argument that we’re going to be a higher risk of default I find close to absurd.”

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