Moody's Warns U.S. Could Lose Triple-A Rating

Credit rating agency Moody's (MCO) said Tuesday that the United States, along with 16 other countries, could lose their Triple-A credit rating if fiscal deficits and heavy debts are not effectively managed.

While Moody's analysts emphasized that the United States' Aaa rating is not under immediate threat, it did say the rating could be downgraded in 2013 if the fiscal position does not improve.

"Aaa governments with stretched balance sheets will find themselves under pressure to announce credible fiscal plans and -- if markets start losing patience -- to start implementing them," said Pierre Cailleteau, managing director of Moody's Sovereign Risk Group, in a statement.

The Triple-A credit rating of the United States is both a point of pride and financial importance. If the U.S. were to lose its credit rating, even by one notch, it would significantly increase the government's cost of borrowing.

Moody's said that the biggest issues for the U.S. and other Aaa-rated countries will be the ability to have sustained economic growth coming out of this recession while also reducing fiscal deficits. The U.S recorded a record $1.42 trillion annual deficit for 2009, which raised the total amount of debt held as a percentage of the nation's GDP to 53.8%, according to the Congressional Budget Office.

The U.S.'s deficit as a percentage of GDP is expected to rise to 67% by 2018, the CBO said.

According to Moody's, the U.S. and other major Aaa-rated countries are not at risk and retain the "characteristics necessary for a Aaa rating," but have "lost altitude" in the Aaa space.

Austan Goolsbee, a member of the President’s Council of Economic Advisers, disputed Moody's report, saying that "it’s rather obvious that the U.S. government is not in danger of default."

"The deficit in the short run is big because we confront the worst economic crisis since 1929," he said. "In the medium run, the fiscal situation is dramatically better and we need to have fiscal responsibility, but the argument that we’re going to be a higher risk of default I find close to absurd.”