U.S. debt rat­ing faces Moody’s down­grade

The Washington Times Weekly - - Politics - BY STEPHEN DI­NAN AND SEAN LENGELL

Moody’s rat­ings agency on June 2 warned that it would prob­a­bly have to down­grade the U.S. gov­ern­ment’s debt rat­ing un­less the White House and Congress work out a “cred­i­ble agree­ment on sub­stan­tial deficit re­duc­tion” by the mid­dle of next month.

In its stark state­ment, Moody’s — one of the three big rat­ings agen­cies that help de­ter­mine how easy it is for the gov­ern­ment to bor­row money — said the fight over rais­ing the debt ceil­ing is worse then ex­pected, and that’s in­creased the risk that the gov­ern­ment will de­fault on its debt.

Just as sig­nif­i­cantly, the agency said if lawmakers miss this chance to lower deficits, then no deal will get done be­fore the 2012 elec­tions. So Moody’s set a mid-July dead­line for progress on a deal, or else it said a down­grade of the U.S. rat­ing “is likely.”

The warn­ing fol­lows the de­ci­sion by Stan­dard & Poor’s in April to lower its out­look on U.S. debt from sta­ble to neg­a­tive.

“This re­port makes clear that if we let this op­por­tu­nity pass with­out real deficit re­duc­tion, Amer­ica’s fi­nan­cial stand­ing will be at risk,” said House Speaker John A. Boehner, Ohio Repub­li­can. “A cred­i­ble agree­ment means the spend­ing cuts must ex­ceed the debt-limit in­crease. The White House needs to get se­ri­ous right now about deal­ing with our deficit and debt.”

The House ear­lier in the week, in an over­whelm­ing vote, de­feated a bill that would have raised the debt ceil­ing by more than $2 tril­lion. The move was de­signed to show Pres­i­dent Obama that any debt in­crease will have to be ac­com­pa­nied by spend­ing cuts.

Fed­eral debt stands just be­neath the $14.294 tril­lion limit al­lowed by law, and the Trea­sury Depart­ment is us­ing ex­tra­or­di­nary meth­ods to keep from cross­ing the line. But those tools will only last un­til Aug. 2, and if the limit isn’t raised by then, the gov­ern­ment would have to sus­pend nearly half of its pay­ments.

Shortly be­fore the Moody’s warn­ing, Mr. Boehner de­manded that Mr. Obama him­self of­fer a plan for debt re­duc­tion that could serve as the ba­sis for talks.

“If the White House wants to get this done, it’s time for them to step up the plate and get se­ri­ous about it,” he said.

Mr. Obama two months ago tapped Vice Pres­i­dent Joseph R. Biden to lead talks with con­gres­sional lead­ers on a broad debt-re­duc­tion plan, and Mr. Obama set an end-of-June dead­line.

But last week, Mr. Biden was in Italy and the Se­nate was on a week­long va­ca­tion, and this week the House is slated to take a va­ca­tion, leav­ing lit­tle time to reach an agree­ment by the end of the month.

The two sides said the talks are go­ing well, but they have yet to tackle the big stick­ing points.

Repub­li­cans in­sist a deal should cen­ter on ma­jor spend­ing cuts, while Democrats say tax in­creases also need to be part of the fi­nal pack­age.

L ead­ers of both par ties, though, say they will not ac­cept de­fault.

Trea­sury Sec­re­tary Ti­mothy F. Gei­th­ner briefed Repub­li­can fresh­men at the Capi­tol on June 2 for more than an hour on the debt-limit sit­u­a­tion, and while he slipped out of the meet­ing with­out talk­ing to re­porters, the lawmakers said they are hav­ing an open di­a­logue about how to get a deal done.

Still, House Repub­li­can fresh­man Rep. Diane Black of Ten­nessee said the group asked Mr. Gei­th­ner for the ad­min­is­tra­tion to come up with a de­tailed debt-limit plan that could be scored by the in­de­pen­dent Con­gres­sional Bud­get Of­fice.

“It’s aw­fully dif­fi­cult to talk and have a con­ver­sa­tion about what we are able to ne­go­ti­ate be­tween the two [sides] if there’s not a plan,” Mrs. Black said.

Some key Repub­li­cans have said Medi­care should be among the spend­ing re­duc­tions, but that’s a ma­jor stick­ing point for Democrats.

“A com­pro­mise that both pre­vents a cat­a­strophic de­fault on our obli­ga­tions and sig­nif­i­cantly re­duces the debt is within reach, but only if Repub­li­cans stop in­sist­ing on unattain­able, ide­o­log­i­cal goals like their ex­treme plan to dis­man­tle Medi­care,” said Sen. Charles E. Schumer, New York Demo­crat.

House Democrats met with Mr. Obama on June 2 and reit-

Fed­eral debt stands just be­neath the $14.294 tril­lion limit al­lowed by law, and the Trea­sury Depart­ment is us­ing ex­tra­or­di­nary meth­ods to keep from cross­ing the line. But those tools will only last un­til Aug. 2, and if the limit isn’t raised by then, the gov­ern­ment would have to sus­pend nearly half of its pay­ments.

er­ated their op­po­si­tion to in­clud­ing the plan by Rep. Paul Ryan, Wis­con­sin Repub­li­can and Bud­get Com­mit­tee chair­man, to turn Medi­care into a voucher­like pro­gram for those un­der 55 years of age, where they would choose a pri­vate plan and the gov­ern­ment would pay the in­surer for cov­er­age.

ASSOCIATED PRESS PHO­TO­GRAPHS

“The White House needs to get se­ri­ous right now about deal­ing with our deficit and debt,” said House Speaker John A. Boehner, Ohio Repub­li­can.

Trea­sur y Sec­re­tar y Ti­mothy Gei­th­ner is fol­lowed by re­porters af­ter meet­ing with GOP House fresh­men on Capi­tol Hill on June 2.

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