Moody's: Why we're not downgrading U.S. yet

@CNNMoney August 8, 2011: 7:02 AM ET

NEW YORK (CNNMoney) -- Moody's Investors Service explained Monday why it was sticking with its triple-A bond rating and negative outlook for the United States, setting itself apart from Standard & Poor's, which downgraded the U.S. last week.

Moody's said it expects the economy will improve and additional measures to reduce the budget deficit will be in place by 2013. The rating agency said this is why it reiterated its AAA rating for U.S. debt on Aug. 2, when the Senate agreed on a 10-year plan to reduce the deficit by more than $2 trillion.

But Moody's said that its negative outlook, which it also assigned on Aug. 2, was due to political squabbling in Washington -- the biggest potential threat to the bond rating.

"We expect the economic recovery will continue and additional budget deficit reduction initiatives will be put in place by 2013," said Moody's, in its report on Monday. "The political parties now appear to share similar deficit reduction objectives."

But Moody's also said, "However, the disagreement between the two parties over the means by which to achieve deficit reduction and the difficulties experienced in reaching a compromise on raising the debt ceiling highlight the risks of political polarization. This uncertainty is among the drivers of our negative outlook."

U.S. downgrade: Did S&P get it right?

Moody's released this explainer three days after S&P downgraded the credit rating of the United States on Friday. S&P said that it wasn't enough for lawmakers on both sides of the aisle to agree to raise the debt ceiling -- that the U.S. also needed a "credible" plan to tackle long-term debt.

S&P also highlighted political bickering as a key factor in undermining its confidence in U.S. debt, with governance "becoming less stable, less effective and less predictable than what we previously believed." To top of page

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