Moody's: Government Debt Is Vastly Understated, And On Its Current Path America Will Be Downgraded


Moody’s has issued a fresh, stern warning to the U.S., in regards to America’s treasured AAA-debt status.On its current path, the U.S. will be eventually downgraded. It’s as simple as that.

Remember the days when U.S. bonds were taught to represent the ‘risk-free’ interest rate in finance? It seemed pretty dumb even then.

Financial Times:

“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.

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.”

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