Here’s how you know the massive amounts of debt compiled by the Bush administration, and the even greater debt loads promised as part of Barack Obama’s agenda, is reaching crisis proportions: Even the Wall Street bond-rating agencies are now sounding the alarm bells.
At issue is a report issued by Moody’s Investors Service that says the triple-A rating on U.S. government debt might someday be a thing of the past. The triple-A rating is, of course, an opinion, but one that carries a lot of weight in the bond markets. It is Moody’s belief that the chances the U.S. federal government will default on its debt are zero and that investors who hold U.S. bonds are guaranteed their full interest and principal payments.
In its report, the ratings agency still puts those chances at zero, but it adds that based on the sluggish economy and all of Washington’s new spending promises, the zero-percent probability of default is starting to look less and less likely in the years to come.
As someone who has covered ratings agencies and their role in the markets for two decades, I can tell you that they are masters of doublespeak because they’re constantly in cover-my-ass mode. The agencies are far from objective prognosticators; they publish ratings for investors, yet they are paid by entities that issue debt, meaning their bias is to go easy on bond issuers.
