As the debt debate continues in Congress, Moody’s makes the recommendation to eliminate the debt ceiling altogether. According to the credit rating agency, taking this step should be considered as a backup plan if lawmakers can’t come to any other agreement.
Chances of Compromise Deal Fading
Only two weeks away from the Aug. 2 deadline Treasury Secretary Timothy Geithner issued on May 16–shortly after the $14.3 trillion debt ceiling was reached–lawmakers have made little progress in coming to a compromise that will result in either increasing the ceiling or reducing the deficit to avoid default.
Warnings to come to an agreement before the deadline have been issued by President Barack Obama who recently told the American public that Social Security checks may not be sent out if the government defaults.
Credit ratings agencies Moody’s Investors Service and Standard & Poor’s have also issued warnings that the U.S. could lose its AAA rating from both companies it defaults. Not to mention that the nation could spiral into one of the worst financial crises in its history.
As of Monday morning, lawmakers were only a bit closer to coming to a resolution, which is why Moody’s chose to interject with its own idea.
Lawmakers Should Consider Eliminating the Debt Ceiling
On Monday, Moody’s chimed in on the debt issue by suggesting the U.S. would be better off if the debt ceiling were eliminated entirely. This should be considered, according to Moody’s, if lawmakers can’t come up with a plan that could increase the debt ceiling and reduce spending.
The agency explained that the limit has not done enough to effectively restrain spending. Not only that, but the legislative process “creates periodic uncertainty over the government’s ability to meet its obligations.”
Moody’s reiterated its warning that it would have to drop the nation’s outlook from stable to negative if no deal at all is made. So far, no deal has been made, however. This leaves many to wonder how the nation will be affected if a default does indeed occur.
