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Moody’s: Harsh Deficit Cuts Will Protect US Rating

Monday, 15 November 2010 03:19 PM

Implementing a plan from leaders of President Barack Obama’s commission to reduce the federal deficit would safeguard the nation’s credit rating, according to Moody’s Corp.

The co-chairmen of the commission on Nov. 10 proposed a $3.8 trillion deficit-cutting plan to trim Social Security and Medicare costs, reduce income-tax rates, increase the gasoline tax and eliminate tax breaks, including the mortgage-interest deduction, among other measures. It would reduce the annual deficit from $1.3 trillion this year to about $400 billion by 2015 and lead to reducing the $13.7 trillion national debt.

“Measures to stabilize and ultimately reduce the debt trajectory would be desirable since continuous increases would eventually put pressure on the Aaa rating,” Moody’s analyst Steven Hess, wrote in the report. “Actual adoption of a plan to reduce deficits and debt ratios, regardless of its composition, is the important thing for the credit.”

An Aaa rating is the highest credit rating Moody’s gives and signals “minimal credit risk,” according to the New York- based company’s website.

The amount of U.S. debt outstanding rose to $13.7 trillion in October, according to the Treasury Department. The Fed and U.S. agencies have lent, spent or guaranteed about $8.2 trillion to lift the economy from the worst slump since the Great Depression, according to data compiled by Bloomberg.

The White House budget office projects the federal deficit this year will exceed $1.5 trillion, or 10.6 percent of gross domestic product, and will remain as high as $751 billion, or 3.9 percent of GDP, in five years.

Washington Plan

The plan was announced in Washington by debt commission co- chairmen Erskine Bowles, a Democrat who served as a White House chief of staff to President Bill Clinton, and former Senator Alan Simpson, a Wyoming Republican. The National Commission on Fiscal Responsibility and Reform needs agreement from 14 of its 18 members before a plan can be sent for an up-or-down vote in Congress.

The potential for implementation of the plan is “low,” according to the report, citing aversions in Congress as its release created instant opposition from Democrats, some Republicans and groups such as the Mortgage Bankers Association and the Aerospace Industries Association.

Democratic House Speaker Nancy Pelosi called the targeting of Social Security and Medicare “simply unacceptable,” and Republican Representative Jeb Hensarling of Texas expressed opposition to proposals to raise taxes.

“It is likely that commission members will have disagreements over many of the proposals and that the final document will be substantially modified,” Hess wrote. “The challenge for the commission is to make tradeoffs so that the recommendations will still point to a path of reduced deficits and debt ratios,” the report said.

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Implementing a plan from leaders of President Barack Obama s commission to reduce the federal deficit would safeguard the nation s credit rating, according to Moody s Corp.The co-chairmen of the commission on Nov. 10 proposed a $3.8 trillion deficit-cutting plan to trim...
Monday, 15 November 2010 03:19 PM
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