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Moody's warns of US debt rating risk

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2023-09-26

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As hard-right Republicans push the US government towards a shutdown on Sunday afternoon Sydney time, ratings agency Moody's has cracked, warning that its AAA rating on US debt is in danger of being removed.

Moody's is the last of the trio of major ratings groups with a AAA rating on US debt - S&P cut its rating in 2011 after a significant shutdown and financing brawl in the first term of President Obama, and Fitch cut its rating on August 1.

The growing chance of a shutdown and Moody's warning had no impact on markets. Comex gold futures fell $US10 an ounce to around $1,934 an ounce, which is a little odd when you'd expect gold to be a 'store of value' in uncertain times like the one now developing.

Oil prices dipped back under $US90 a barrel for US crude, and major Wall Street indices ended in the green.

The weakness in gold and oil was due to rises in the value of the greenback and US bonds, which jumped to 4.549% for the 10-year bond in late trading Monday, the highest they have been for more than a decade. This was as the US dollar jumped against most currencies, and the dollar index touched 106.10, the highest level so far this year.

Both S&P and Fitch cited the growing debt, political instability, and an unwillingness by anyone to resolve the situation. All the funding crises in recent years have been driven by hardline conservative Republicans while Democrats are in the White House.

The same bunch of right-wingers did nothing when Donald Trump was President, even though debt and deficits rose under him as he handed out unfunded tax cuts, especially to upper-middle-class and wealthy taxpayers.

On Monday, Moody's said a US government shutdown would be "credit negative" as it would highlight the weakness of US institutional and governance strength compared to other top-rated governments, even though its economic impact would be brief unless the closure became prolonged.

“While government debt service payments would not be impacted, and a short-lived shutdown would be unlikely to disrupt the economy, it would underscore the weakness of US institutional and governance strength relative to other Aaa-rated sovereigns that we have highlighted in recent years,” Moody's said in Monday's statement.

"A shutdown would be credit negative for the US sovereign," Moody's said, adding that it could have been S&P writing that back in 2011 and Fitch in August.

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