Just heard that discussion was flying around Moody’s after the Fitch announcement today, over whether their rating should be in the “B” range or “C” range if the default occurs.

One train of thought was that with the alternative universe Republicans currently live in, where thinking that  we can weather the default of the debt ceiling as well as the government shutdown indefinitely or until at least Obama puts in his resignation papers,  dropping  the USA’s rating only a point or two, would not be an accurate portrayal of the risk.

These rating organizations have a reputation to keep.  Were they to make the bonds drop only from A+++ to an A++, or down to an A+, it would give credence to the viewpoints of the alternative universe’s thinking that “gee, that wasn’t so bad” and prolong the crises.

If the US Government can’t decide to open itself up, and can’t decide to pay the obligations to which it has already committed, then it is no better than Somalia, or Chad, or the Central African Republic They can’t open due to war and insurrection; we can’t open because of immature legislators.  The result is the same;  they aren’t governing, and that is a bad risk. Except we have a lot more money than Somalia, Chad, and the Central African Republic, which will depreciate faster than the Titanic hit bottom once it finally slipped under.

And that is the other side of the argument.  That considering the outcome of default, and effect of the lowering of the rating, that perhaps modifying the amount of the drop might be prudent.  Drop the bond ratings to the level of Portugal or Bulgaria, keep it in the “B” range, instead of the Somalian range where it belongs.

Then the other side counters back… But if we do that, the Tea Party will say, “see, they were lying, default is not as bad as they said…” 

Most likely they will err on the side of caution.  Drop it into the “B” range….  Save the “C” range for another day…. 

That at least, was the rumor told to me as being the current mood at Moody’s…  As everyone knows, the “official” word could be a whole different level entirely.

 

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