Investors remain unconcerned about the U.S. credit rating despite the warning issued last week by Moody’s Investors Service of a potential negative credit watch.
Moody's said the U.S. didn’t face an immediate threat to its triple-A ratings because it is still able to service its debt. However, rising interest rates could make it more expensive to do that.
“If the current budget deficit trends continue, the interest servicing burden will approach those of the 80s,” said Ron D'Vari, CEO and co-founder of NewOak Capital. “This time could be very different. This time around the government may not be able to solve the issue as easily by just lowering the interest rates as they are already near the lows. Since the government is already in a box of not being [able] to either lower spending or increasing already high taxes, the public finance will continue to deteriorate and the rating agencies may have to take action."
D’Vari added that investors continue to rely on the reserve currency status of the U.S. and ignore such a risk. This is despite the fact that the Chinese officials, who are one of the largest holders of U.S. Treasury bonds, have already indicated their concerns at the possibility of not getting their money back.
In a testimony before the House Appropriations Committee, Treasury Secretary Timothy Geithner was asked about the recent Moody’s report. He told the committee that the U.S. is not in danger of losing its triple-A rating, but said the U.S. faces “tough” fiscal choices.
“This is completely within our capacity as a country to solve,” Geithner told the committee, referring to the risks associated with postponing fiscal expectations as the nation copes with its growing debts. “It just requires that we find some political will to make those choices. ”