"Moody's: Neither debt plan protects the nation's AAA rating"

Trillion dollar cuts or even a few trillion dollar cuts in the deficits sound big until you realize that those cuts are out of $46 trillion in spending over the next decade and that Obama's budget released in February scheduled deficits of $10.3 trillion over that period of time. Moody's points out the real problem with the current debate isn't this coming Tuesday, the real problem is that not enough money is being cut.

The "limited magnitude" of both debt plans put forward by congressional leaders would not put the nation's AAA credit rating back on solid footing, Moody's Investors Service announced Friday.

"Reductions of the magnitude now being proposed, if adopted, would likely lead Moody's to adopt a negative outlook on the AAA rating," the credit rating agency said in a new report. "The chances of a significant improvement in the long-term credit profile of the government coming from deficit reductions of the magnitude proposed in either plan are not high."

It added that "prolonged debt ceiling deliberations" have increased the odds of a downgrade, but that the firm is still confident policymakers will avoid a default.

"It remains our expectation that the government will continue with timely debt service," the firm said.
It also clarified that as far as it is concerned, the nation will only default if it misses an interest or principal payment on U.S. debt, not if it misses payments on other obligations like federal employee salaries or Social Security benefits. . . .