Moody’s warns US of credit rating downgrade in 2013

Moody's credit rating agency said that it would consider downgrading the US next year if the current budget stand-off was not solved.

The agency said that it would downgrade the US to an Aa1 rating from Aaa if an agreement on the debt ratio isn’t reached, said Bloomberg.

Standard and Poor's has already downgraded US debt to AA+ after a protracted budget crisis last year.

During the so-called debt ceiling crisis Moody's put the US rating under review, awaiting a resolution to the largely political dispute.

According to the Guardian, the fight centers around $1.2 trillion in spending cuts and tax increases first laid out by former president George W. Bush.

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Bush's tax cuts were extended by Obama last year but the president has refused to commit to their extension this year.

Democratic politicians say the cuts serve only the richest Americans and only succeed in widening the wealth gap.

Republicans have refused to exclude tax cuts for the richest one percent while maintaining middle class tax cuts as Democrats suggest, said the Guardian.

To add insult to injury, Moody's has also warned of the weaknesses in the US banking system today.

"Our negative outlook for the U.S. banking system reflects a challenging domestic operating environment, with prolonged low interest rates, high unemployment, weak economic growth and fiscal policy uncertainties," said Moody's senior vice president Sean Jones in a statement.

Yet, despite it all, the US deficit is expected to shrink this year from $1.3 billion to $1.1 billion as tax revenues increase and spending decreases, said Bloomberg.

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