Moody is a highly political company that rates debt of all types. It currently has the US debt ie treasuries, rated as AAA ,its highest rating.Moody stated today that it may be forced to reduce US debt ratings due to the current unsustainable debt level and the affects of the tax deal in congress.It anticipates reducing the rating in a year or so.This means treasury rates will go up.They already have in the past week to the highest level in six months.This in turn makes the cost to finance the debt higher,forcing yet higher debt levels.
To figure out what this really means conceder the source.Remember Enron? Just before it collapsed, stock analysts were rating it as a strong buy, a must own stock.Moody is no different than the stock analysts. Just before the financial collapse they had a AAA rating on the credit default swaps.
So if Moody says it might have to downgrade US treasuries in a year, it really means that treasuries are actually downgraded now. This means higher interest rates, higher taxes and higher unemployment are almost a certainty.
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