Deal or No Deal, Downgrade From Moody’s Unlikely

Nov 20, 2011 4:29pm

With the members of the supercommittee teetering on the cusp of failure, many are worried about the potential for a U.S. credit downgrade, but one Moody’s economist says that his firm is not likely to downgrade U.S. debt because it expected Congress to fail from the start.

“You know, it’s all relative to expectations and investor expectations with regard to the committee I think are — have been and are still very, very low,” Moody’s economist Mark Zandi said on “Fox News Sunday.”

The committee has until Wednesday to complete and score a final deal but last minute political posturing and blame games have led many to believe that Congress won’t meet the Thanksgiving deadline.  If that happens, Congress will have one year before supercommittee provisions kick in with $600 billion in automatic cuts from the Pentagon budget and 2 percent across-the-board cuts to Medicare providers’ payments.

Cuts of that magnitude would, in theory, calm the markets enough to prevent financial calamity.

“So this shouldn’t foster a downgrade or a run on the market or anything like that. The $1.2 trillion in savings occurs one way or the other,” Republican Sen. Jon Kyl said on “Meet the Press.”

But Zandi also pointed to other looming Congressional deadlines, including an extension to unemployment benefits, a Medicare doctor payment fix, a patch to the alternative minimum tax and an extension to the payroll holiday, all of which would have a significant effect on the economy if Congress failed to act by the end of the year.

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