Moody's credit rating agency Tuesday warned it
would lower the US government's Aaa credit rating unless it reduces
its high deficit by the end of 2013.
The US already has a "negative outlook" rating from Moody's, which the firm said would "probably" drop to Aa1 unless Washington's gridlocked budget negotiations produce an agreement to lower the deficit while avoiding a so-called fiscal cliff.
Moody's said the US must reduce the ratio of federal debt to the gross domestic product (GDP), which currently stands at about 106 per cent. The federal deficit recently hit 16 trillion dollars.
But it said it would "likely" maintain the current Aaa rating with a negative outlook through 2013, until the outcome of negotiations becomes clear.
In August 2011, the US government was nearly forced to declare default after Congressional Republicans refused to raise the debt ceiling unless Democratic President Barack Obama made concessions on tax cuts for big earners and other issues.
Congress finally upped the debt ceiling after an agreement to delay final budget issues until after the November 6 elections, when Obama faces Republican Mitt Romney.
Absent agreement on tax and spending issues, an automatic sequestering of the budget which will entail drastic budget cuts will go into effect, sending the country over a "fiscal cliff" - and possibly into recession, the nonpartisan Congressional Budget Office has warned.
After the August 2011 standoff, Standard & Poor's rating agency lowered the US long-term credit rating one notch, from AAA to AA-plus. Lowered credit ratings increase the amount of interest the government must pay to borrow money.
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