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U.S. Rating Under Pressure From Deficit, Moody’s Says
By Inyoung Hwang
http://www.bloomberg.com/apps/news?pid=20601087&sid=al6JJa7EEsPI&pos=6

Feb. 2 (Bloomberg) -- Moody’s Investors Service Inc. said the U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.

The U.S. retains its top rating for now because of a “high degree of economic and institutional strength,” the New York- based rating company said in a statement today. The ratios of government debt to the U.S. gross domestic product and revenue have increased “sharply” during the credit crisis and recession. Moody’s expects the ratios to remain higher compared with other Aaa-rated countries after the crisis.

President Barack Obama projected yesterday the U.S. budget deficit will rise to a record $1.6 trillion in 2010, representing 10.6 percent of U.S. gross domestic product, the highest level since World War II. The Treasury will sell $2.43 trillion in notes and bonds this year, a 16 percent increase from the record $2.1 billion sold in 2009, according to the average forecast in a Bloomberg News survey of 10 primary dealers that trade with the Federal Reserve.

“If the current upward trend in government debt were to continue and become irreversible, the rating could come under downward pressure,” said analysts led by Steven A. Hess, senior credit officer at Moody’s in New York.

How the government handles the credit crisis and recession without impairing its balance sheet and the economy’s ability to rebound will be issues that could weigh on the U.S. rating, the report said.

Government Spending

Obama proposed plans to offset spending by more than $1.2 trillion over 10 years, including a freeze on domestic programs and higher taxes and fees on households earning more than $250,000 and banks that benefited from the financial industry bailout.

The plan showed larger deficits and higher debt levels than in the original budget, Moody’s said. The ratio of debt to GDP in the U.S. will continue its trend higher, reaching 76.5 percent in 2019 compared with an earlier forecast of 70.1 percent, Moody’s said.

The budget deficit in 2009 was $1.4 trillion. The White House goal has been to reduce the deficit to about 3 percent of GDP, which most economists say is sustainable. The budget presented yesterday though predicts it’ll average 4.5 percent over 10 years.