Moody's Blues: Another U.S. Credit Downgrade?

By Rob Janicki
From The Telegraph across the Big Pond comes this disturbing revelation.  Okay, It's not really a secret, but it still has merit considering it's a British media source that's reporting it and thus has an effect upon how Brits and Europeans view our very own fiscal disaster in the making.

[...] America's hold on a AAA rating will collapse next year unless Washington takes measures to rein in the government's debt, Moody's has warned. [...]

With news like this, how can any European tolerate having Obama lecture them on fiscal prudence and reform?  If Obama thinks he is some shining example of anything, he needs to rethink that thought.  Europeans have already figured out he is an empty suit and they are willing to illustrate that fact.

[...] The credit rating agency delivered a stark warning that it will follow its rival, Standard & Poor's, and strip the US of its top rating unless Republicans and Democrats reach an agreement that has proved beyond them over the last four years.

The ratio of America's debt compared to the size of its economy will balloon to 73pc (%) by the end of the current fiscal year on September 30, the Congressional Budget Office (CBO) has forecast. The CBO has warned it could spiral to 90pc (%) by 2022 and higher still after that unless spending is cut and the amount raised in taxes is increased. The ratio averaged about 40pc (%) for most of the period after World War Two. [...]

It doesn't take a math genius to figure out that the biggest drivers of our deficits will have to be reined in and those drivers are Social Security, Medicare and Medicaid.  All other spending areas such as defense and education pale in comparison to the big three.  Add Obamacare and it becomes an active disaster growing in absolute terms and as an increasing percentage of total spending.  Think of these four drivers as the Four Horsemen of the Apocalypse 

[...] An additional layer of pressure is being applied because the US faces what Federal Reserve chairman Ben Bernanke has called the 'fiscal cliff' at the start of next year. The term is shorthand for a series of tax rises and spending cuts which, if they are all allowed to take effect, are expected to push the US back into recession. [...]

We are at that fiscal cliff right now and I predict that a settlement between Democrats in the Senate and Republicans in the House will not be reached by December 31.  Thus taxmageddon will be upon us beginning January 1, 2013. The  November 6 election will have a profound affect on whether Congress will act before December 31 to avoid this fiscal disaster or simply make it a political football for the next Congress to face after their swearing in on January 20, 2013.  And the football game will continue...

[...] With a number of political scenarios possible after November's presidential and congressional elections, it is unclear whether an agreement to avoid the fiscal cliff would also produce the agreement on America's long-term fiscal health that Moody's is demanding if the AAA rating is to be preserved. [...]