←
→

Moody’s: Dump the Debt Ceiling

Posted: July 18, 2011 | Author: | Filed under: 2012 presidential campaign, Federal Budget and Budget deficit, U.S. Economy, U.S. Politics, voodoo economics, We are so F'd | Tags: , , , , , |4 Comments

Reuters reports that the ratings agency Moody’s is once again involving itself in the debate over the federal debt by suggested the U.S. eliminate the debt ceiling. Here’s the argument:

The United States is one of the few countries where Congress sets a ceiling on government debt, which creates “periodic uncertainty” over the government’s ability to meet its obligations, Moody’s said in a report.

“We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,” Moody’s analyst Steven Hess wrote in the report….

“…the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk,” Hess said.

Moody’s suggested that the U.S. could use Chile as a model for fiscal responsibility:

“Elsewhere, the level of deficits is constrained by a ‘fiscal rule,’ which means the rise in debt is constrained though not technically limited,” Moody’s said, adding that such rule has been effective in Chile.

I’m sure that will go over well with the Tea Party types.

Moody’s argues that dumping the debt ceiling would be far better than the current “compromise” plan which would force Democrats to vote three times on raising the borrowing limit during the lead up to the 2012 presidential election. From CNN Money:

On Monday, Moody’s threw some cold water on a backup plan that is gaining momentum among lawmakers as the chances of a compromise deal fade.

The plan, crafted by Sens. Mitch McConnell and Harry Reid, would allow the debt ceiling to be increased, while shifting the political blame for that action from Congress to the White House….

“Without more substantial deficit reductions being included in such a plan, it would be negative for the long-term outlook,” the report said.

But overall, Moody’s said “the U.S. would be better off if the debt ceiling were eliminated entirely.”

The McConnell-Reid plan would also establish a new Catfood Commission with the power to produce legislation that could not be amended by Congress.

I’m sure Moody’s would be OK with that, but I’m sure not. Maybe Congress needs to dump the McConnell-Reid catfood-for-everyone-but-the-rich-plan and get rid of the debt ceiling instead.

4 Comments on “Moody’s: Dump the Debt Ceiling”

  1. bostonboomer says:
    July 18, 2011 at 12:25 pm

    This is interesting: Analysis: Investors break their bonds to ratings agencies

    Managers responsible for billions of euros of fixed income investments are reviewing relationships with the likes of Fitch Ratings, Standard & Poor’s and Moody’s Investors Service, whose calls on Portugal, Ireland and the United States have roiled central banks desperate to avert a collapse of the Euro zone.

    Fund firms contacted by Reuters said rating agency research tended to be backward-looking and superficial, and often encouraged the kind of speculation that has recently dragged down Italy, one of the world’s largest government bond issuers.

    “We have canceled our subscriptions to two of them and they haven’t left us alone since. It has been very irritating,” the head of sovereign debt investment at one large European bond investor told Reuters on condition of anonymity.

    “It would be naive to blame the agencies for everything that went wrong during the financial crisis but anyone who relies on a third party to form their investment opinions is headed for trouble … clients pay us to make those decisions, it would be completely wrong of us to abdicate that responsibility.” Investors say they have steadily reduced reliance on external research providers ever since rating agencies slapped high ratings on complex structured financial investment products such as collateralized debt obligations (CDOs) which later turned out to be far riskier than initially assessed.

  2. dakinikat says:
    July 18, 2011 at 12:42 pm

    I was just reading this. It’s actually a good idea. I wish that congress would consider a budget rule that guides the spending process. Based on Keynesian economics, deficit spending is allowable during wars and recommended during recessions. Budgets should tend towards surpluses during booms in order to stop government-induced inflation. During full employment equilibrium, budgets should be balanced. The Clinton administration followed these implicitly. Unfortunately, congress gets carried away with spending when the tax dollars are pouring in. They can’t resist the pork.

  3. Minkoff Minx says:
    July 18, 2011 at 1:31 pm

    But if Washington does do something logical like getting rid of the debt ceiling entirely, it is just one less thing for both parties to use as fodder in the media.

  4. jawbone says:
    July 18, 2011 at 4:07 pm

    This would indeed be a good idea.

    And it’s from a ratings agency? Huh?

    Wow.

←
→