By The Hill Editors - 08/01/11 11:38 PM EDT
Now that Congress has finally produced a debt-ceiling bill, President Obama and lawmakers can allow themselves a huge sigh of relief.
No, actually, they can’t.
The nation’s AAA rating is at risk, and how agencies assess Congress’s legislative fix will be telling.
Last Friday, Moody’s Investors Service said the “limited magnitude” of a Democratic and Republican debt plan would not put the nation’s rating on solid ground.
“Reductions of the magnitude now being proposed, if adopted, would likely lead Moody’s to adopt a negative outlook on the AAA rating,” the agency said in its report. “The chances of a significant improvement in the long-term credit profile of the government coming from deficit reductions of the magnitude proposed in either plan are not high.”
Other ratings agencies, including Standard and Poor’s and Fitch, have likewise put Congress on notice.
It is noteworthy that the merged Democratic-GOP debt measure heading toward President Obama’s desk is extremely similar to the versions that passed the House and Senate last week. The bill is not considered especially bold.
Several people on Wall Street have told The Hill they are bracing for a downgrade, which could have a big impact on the economy.
Critics of the latest bill say Congress did what it does best: Kick the can down the road.
The politically tough decisions on entitlement spending, taxes and other controversial issues will be handled by a congressional committee. Committees and commissions are easy to launch, but most of them fail.
There are trigger mechanisms in the bill that, supporters say, will force negotiators to compromise. That remains to be seen.
Over the last several months, the debt-ceiling debate has overshadowed everything else. There will be a short respite, and then it will heat up again in the late fall.