18 Jul
2011
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Moody’s: Democrat Shop?

As the country awaits the latest news on the “debt deal,” Moody’s, one of two credit rating agencies (the other being Standard & Poors), has become increasingly vocal that the United States should raise its debt ceiling, or lose its Aaa bond rating.

Now CNBC reports that Moody’s recommends that the United States do away with the debt ceiling altogether.

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.

But should we take Moody’s as a neutral party?  It’s hard to say.  Consider:

1. Where was Moody’s the last 2.5 years, when our Federal government was accumulating the most debt in the history of the world?

2.  A credit rating is meant to convey likelihood of default.  Common sense tells us that the more money one borrows, all other things equal, the more difficult it is to pay back.  By this logic, a strict limit on borrowing should actually bolster one’s credit score, not diminish it.

3. The debt ceiling is the only legal mechanism that is containing Barack Obama’s radical agenda.  Although $14.3 trillion debt is an unfathomable amount of money, imagine $20 trillion, or $30 trillion.  To pay off $14.3 trillion will require significant cuts and entitlement reform, or, alternatively, painful government rationing.  Obamacare makes healthcare an excellent candidate for rationing, and indeed it has already begun.

4. The Federal Reserve just wrapped up the  $600 billion “QE2″ program, effectively monetizing debt.  (This means that government bonds were turned into dollars, and now sit on the balance sheets of banks.)  Debt monetization is actually inflation, i.e. printing money.  Eventually this practice leads to higher real prices, and typically higher nominal prices (see gasoline, food).  More debt means more debt monetization, especially in light of a stagnant economy and a flailing tax base.

5.  The United States Treasury has more than enough money to pay interest on its debt, pay Social Security, and Medicare/Medicaid.  To meet these obligations Geithner and Obama would have to prioritize, and cut some of their vote-buying programs (like generous unemployment benefits for the mass of joblessness they’ve created).

All this said, one has to wonder what is going on at Moody’s, and whether their integrity and independence has been severely compromised.

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