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Rating alert adds pressure to stalled US debt talks

Washington, July 14, 2011

Moody's Investors Service jolted White House debt talks with a warning that the United States may lose its top credit rating in the coming weeks, piling pressure on Washington to lift its debt ceiling.

The announcement by Moody's, the first among the major rating agencies to place the nation's AAA rating on review for a possible downgrade, came just before President Barack Obama convened deficit talks that turned into what a Republican aide said was the tensest session in four straight days of meetings.

The president and lawmakers, who met for nearly two hours on Wednesday, are trying to agree on a deal to reduce the deficit. Republicans demand steep spending cuts in return for supporting an increase in the $14.3 trillion borrowing limit to avoid a potentially devastating national default.

Obama told Republicans at the conclusion of a stormy budget meeting on Wednesday that he would not yield further even if it put his presidency at risk and ended the session abruptly, a Republican aide said.

"I have reached the point where I say enough," Obama said, according to the aide. "Would Ronald Reagan be sitting here? I've reached my limit. This may bring my presidency down, but I will not yield on this."

Another source in the room denied Obama had closed the talks abruptly but said he told congressional leaders "enough's enough" and that it was essential to get the debt problem solved. A Democratic official said the president, who will hold further talks on Thursday, urged Republicans to stop political posturing.

At Wednesday's meeting, House of Representatives Speaker John Boehner, the top Republican in Congress, dismissed spending cuts offered by the White House as "gimmicks and accounting tricks."

The US Treasury says it will run out of money to pay its bills on August 2. Moody's said it saw a "rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations."

Potentially souring efforts to raise the debt ceiling while putting off talks about spending cuts and tax increases, Moody's said it would likely assign a negative outlook to the nation's gold-plated credit rating if a credible agreement with long-term deficit reduction measures were not achieved.

The move added fuel to a political fire that has seen Republicans and the White House at odds for weeks.

Republicans have insisted on steep spending cuts, while Democrats insist tax hikes for the wealthiest Americans must also be part of a deal. Republicans say they oppose any tax increases because they could hurt the economy.

"They (Moody's) are worried they are having these ideological arguments while Rome burns. They want to say this is serious," said Carl Kaufman, portfolio manager at Osterweis Capital Management in San Francisco.

The last time the United States was placed on review for downgrade was in 1996, by Moody's.  - Reuters

 




Tags: Rating | Moodys | Obama | debt talks |

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