Moody's: Obama Budget Not Good Enough

Moody's is raising alarm bells about our debt rating. With deficits of $1.5-6 trillion expected, any incremental increases in debt financing costs can really add up. I bet that instead of actually trying to fix their budget Obama will instead start putting pressure on Moody's:

Steven Hess, senior credit officer at Moody’s, said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilise debt levels in relation to gross domestic product.

“Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,” the rating agency added in an issuer note.

This week, the White House forecast a $1,565bn budget deficit for 2010, which represents 10.6 per cent of gross domestic product and is the highest such ratio of debt to GDP since the second world war.

While the budget gap is forecast to fall to about 4 per cent by 2013, it is based in part on economic growth not falling below government expectations, Congress agreeing to tax rises and a spending freeze on non-security discretionary spending.

Crucially, projections of the overall debt-to-GDP ratio for the US are seen rising from 53 per cent in 2009 to 73 per cent in 2015 and 77 per cent by 2020.

Moody’s, however, says this understates the overall US debt level.

“Using the general government measure, including state and local governments as well as the federal government, which is used internationally, this ratio would be well over 100 per cent in 2020.”