Moody's Investors Service yesterday (July 13) threatened to downgrade America's credit rating, rattling the White House and lawmakers.
It was the first time the venerable worldwide investor service has put the United States on review since 1995.
Rated “Aaa” since 1917, the nation's credit rating is being scrutinized due to concerns the Treasury may miss a payment on interest or principal for outstanding bonds and notes. Although the risk is low, Moody's said in a statement, the agency remains concerned lawmakers will not move fast enough to raise the debt threshold in time to prevent the administration from defaulting on a payment.
If that happens, the rating would likely be downgraded to “Aa” – and there is no guarantee that Moody's would return America's top rating even if the Treasury manages to cure the default promptly.
Following the announcement, the dollar weakened even further than it already has, as did U.S. stock futures.
America on Asians' 'Negative Watch'
Asian governments are carefully watching the events unfold: China is the biggest foreign holder of Treasuries, with Japan in second place.
China's Dagong Global Credit Rating Company said Thursday it was placing the United States – currently rated A+ with the agency, its fifth-highest level – on “negative watch.” Officials at the firm told Bloomberg News they were concerned about America's deteriorating ability to repay debt.
The Chinese government said it was taking a second look at its holdings in the United States following the Moody's move.
Senior Chinese government researcher Yu Bin told reporters today (July 14) at a news conference in Beijing his nation needed to “seriously assess the risks” of its holdings since the U.S. faces a “worrisome” economic outlook.