Top ratings agency, Moody’s says the US & UK are “substantiallycloser to losing their AAA credit ratings as the cost of servicing their debt rose

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.  “We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”

Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.  Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending.

The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band.  “Those economies have been caught in a crisis while they are highly leveraged,” Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. “They have to make the required adjustment to stabilize markets without choking off growth.”  

So happpy Monday to you!  The Pound is certainly not taking this news well and has plunged to $1.505 from $1.52 in early morning trading and the Euro has flopped back to $1.37 but we are still maintaining 90.7 to the Yen so it’s actually a strong dollar day so far.  Copper, which is one of our key indicators, has fallen back to $3.32 – which is great for our short plays on FCX and gold is hovering under the $1,110 line (the bullish line for gold) while silver, our tie-breaker, is just over the line at $17.  Oil has been skating along at $80.67 for the weekend and gasoline is still strong at $2.25 (go VLO!) with nat gas down at $4.34

Perhaps the US should be more like China, who were going to have a budget deficit of 3.5% of GDP…
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