SEPTEMBER 12, 2012
Moody's threatens downgrade if debt-to-GDP ratio not stabilized and reduced
Sept. 11, 2012, Fairfax, VA – Americans for Limited Government President Bill Wilson today responded to the threatened credit downgrade by Moody's should the U.S. not stabilize and then reduce its debt-to-GDP ratio over the medium term:
"AA will be Obama's scarlet letter. Moody's has set out very real metrics for lawmakers and Obama to avoid another credit downgrade. The debt-to-GDP ratio must be stabilized and then reduced over the medium term as a result of this year's budget negotiations.
"Right now, although the budget deficit will be about $1.2 trillion this year, the nation's full borrowing obligations will be more like $1.45 trillion once certain off-balance sheet items are taken into account. However, the economy is only growing at an annualized pace of about $570 billion.
"Therefore, just to stabilize the debt-to-GDP ratio this year alone would require a full $890 billion of deficit reduction. S&P has already taken the drastic measure of eliminating the triple-A status of U.S. treasuries. Since Obama and Congress will come nowhere near to cutting $890 billion from the budget or raising that much revenue, they will undoubtedly fail to stabilize the debt-to-GDP ratio, so everyone should begin pricing in the downgrade. It's an inevitable national shame."
