Moody’s: Dump the Debt Ceiling

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.