US Government Shutdown Threatens Credit Rating: Moody's

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The United States' top-tier credit rating is at risk due to the ongoing government shutdown, Moody's Investors Service warned on Monday.

The warning comes just four months after the world's largest economy narrowly avoided a credit default. The current shutdown is the result of a concerted effort by hardline Republicans in the House of Representatives to secure deep spending cuts.

With less than a week to go before the end of the month, the measures have yet to pass the Republican-controlled House and have little chance of passing the Democratic-controlled Senate.

"A shutdown would be credit negative for the US sovereign," Moody's wrote in a note to clients.

The warning from Moody's — the only major agency to maintain its rating for US sovereign debt at its highest level — underscores the potential economic danger to the United States of failing to reach an agreement to keep the government funded before the end of the month.

Fitch and S&P have both downgraded US debt in recent years, raising the risk associated with the debt and the cost of government borrowing.

A shutdown "would underscore the weakness of US institutional and governance strength relative to other AAA-rated sovereigns," Moody's wrote.

"Further, a prolonged shutdown would be disruptive to the US economy and financial markets, with potential negative ramifications for the sovereign's debt affordability," it added.

Impact on Credit Rating

A US government shutdown would have a number of negative implications for the country's credit rating. First, it would signal to investors that the US government is unable to function effectively, which could lead to a loss of confidence in the US economy.

Second, a shutdown would disrupt the US economy, leading to lower economic growth and higher unemployment. This could make it more difficult for the US government to repay its debt, which could lead to a credit rating downgrade.

Third, a shutdown could damage the US's reputation on the world stage. This could make it more difficult for the US government to borrow money in the future and could lead to higher interest rates on US debt.

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