Here’s what Moody’s said in June: “A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody’s to change its outlook to negative on the AAA rating.”
The Boehner Plan barely saves a pittance ($6 billion) next year and barely changes the government’s long-term debt outlook. In 10-year terms, it would pile up $23 trillion in debt, instead of the $24 trillion currently projected.
FACT: If enacted, the Boehner “debt & tax hike” plan would not avert a downgrade of US government debt (which would drive up interest rates).
Two of the top credit rating agencies — Moody’s and Standard & Poors (S&P) — have made clear what it would take to maintain the AAA rating on US-issued treasury bonds. The Boehner plan — which the House is slated to vote on tomorrow — does not meet those criteria. Specifically, the plan fails to decrease the amount of publicly held debt as a share of our economy (“debt-to-GDP ratio”), but rather actually increases that ratio.
Under the plan, debt would rise from 62% of GDP today to an economically burdensome 92% in 2021.
In order to stabilize or reduce its debt, a country needs to reduce spending so that its debt grows more slowly than its economy. To do that, the US will need, not just to commit to vague “cuts,” it will have to make serious structural changes in the way it spends. It will have to ensure that the annual deficits — currently running at a staggering 10% of GDP — are quickly reduced to less than 3% of GDP.