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Friday, January 14, 2011

The Real Reason We Risk Our Rating

Jan 14th, 2011

There is increasingly bad news on the horizon regarding the United States' AAA financial rating. Any number of factors are included in yesterday evening's WSJ piece on the chances that S&P and Moody's may be forced to lower that rating. 

This would be, to put it delicately, a disaster of epic proportions. The problem with the piece is that it doesn't actually provide much context for the primary reason both institutions brought this up last year. It also relegates the most important factor to the 16th paragraph.

"...measures of the U.S. debt burden include federal debt to revenue, estimated to average 397% of gross domestic product until 2020. The ratio of interest to revenue, meanwhile, is expected to rise to 17.6% by 2020, nearly double last year's level. These are "quite high for an Aaa-rated country," Moody's said in its report."

REVENUE. Say it with me. "Revenue." Got it? What's glaringly missing here is the fact that Moody's and S&P affirmed in December that the rating might have to lowered due to extension of the "W Tax Cuts." 

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