One might assume that Moody’s action yesterday to put the US credit rating on watch for downgrade was a perfectly reasonable response to the budget impasse.
But if that were the case, then why, for instance, hasn’t Moody’s changed its outlook on Belgium, which has not even had a government for the last 13 months??
Or why hasn’t Moody’s downgraded ALL euro country sovereign debt ratings (ie including France and Germany), when these countries have to bear the burden of the entire eurozone, 18% of which now has sovereign debt which is officially “junk”. You might say that the European peripheral countries are too small to matter. Maybe Greece or Portugal alone could be. But is Italy? Is Ireland? Yet, there’s no change, despite financial conditions in Europe which deteriorate daily.
But because Republicans and Democrats reach a negotiating impasse, not unheard of in democracies by the way, the US credit rating is put on a negative credit watch. The downgrade by Moody’s was important, and outrageous. The timing of the move is such that it appears to be primarily focused on the debt ceiling negotiations. The real focus should be on the budget problems. Putting the US on negative credit watch could have had the positive effect of encouraging Republicans and Democrats to close the budget gap. Instead, Moody’s is just positioning itself as another political rent-seeker, a la Fannie Mae.