It’s the debt, not the debt ceiling. Moody’s announces a negative outlook for U.S. credit:
The U.S., rated Aaa since 1917, was placed on negative outlook, Moody’s said in a statement today as it confirmed the rating after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending. A decision on the rating may be made within two years, or “considerably sooner,” according to Moody’s Steven Hess.
The debt-limit compromise “is a positive step toward reducing the future path of the deficit and the debt levels,” Hess, senior credit officer at Moody’s in New York, said in a telephone interview. “We do think more needs to be done to ensure a reduction in the debt to GDP ratio, for example, going forward.”
When I published RGD in 2009, I don’t remember anyone being concerned about debt levels except Credit Suisse and a few Austrian economists talking about Debt/GDP. It is a subject that few Neo-Keynesian or Monetarist economists are equipped to understand because it simply doesn’t factor into their models. Even those few prognosticators who are recognized for anticipating the 2008 crash, like Nouriel Roubini, didn’t start talking much about it, (except occasionally for the Japanese situation), until the middle of 2010. So, it’s interesting to see that it’s now being actively discussed in mainstream financial media outlets such as Bloomberg.
However, they’re still only looking at Federal debt to GDP rather than the more important figure of total debt to GDP. Keep in mind that it would be highly unusual for Moody’s to actually do any serious downgrading until it is already completely apparent in the credit markets. The ratings agencies are usually three days late and millions, if not billions, of dollars short.