One day after the U.S. Senate and U.S. House of Representatives passed a bill to raise taxes, increase spending, and delay the sequester cuts from the last debt deal, Moody's Investor Services fired a warning shot about the threat of downgrading the U.S.'s credit rating. After the 2011 debt deal -- in which a debt limit increase was coupled with spending cuts (cuts that are now being postponed) -- S&P downgraded the nation's credit rating.
In its warning shot, Moody's highlighted the fact that: "The rating agency expects that further fiscal measures are likely to be taken in coming months that would result in lower future budget deficits, which are necessary if the negative outlook on the government's bond rating is to be returned to stable. On the other hand, lack of further deficit reduction measures could affect the rating negatively. Notably, yesterday's package does not address the federal government's statutory debt limit, which was reached on December 31. The need to raise the debt limit may affect the outcome of future budget negotiations."
Congressman Tim Huelskamp, who repeatedly warned his colleagues that they needed to focus on preventing a downgrade in 2011, issued the following statement about this latest warning:
"America cannot afford for Moody's alarm to fall on deaf ears. In 2011, Washington was given ample notice that America's stellar credit rating was on thin ice, but Washington passed on the opportunity to deliver a solution. Unfortunately for America, last night's so-called 'fiscal cliff' legislation was another last-minute deal instead of a real solution. There were consequences for inaction last time, and clearly there will be consequences this time around as well."
"Politicians who want another quick deal that only worsens America's fiscal problems will argue that we need to worry about default. But, like Vice President Biden, I knew that those were empty threats last time. Our focus should be about avoiding downgrade, and that means emphasizing measures to reduce deficits -- and, ultimately, the nation's $16 trillion in debt."