John Moody’s Appalled

John Moody died in 1958.

He was a self-taught reformer who had a strong entrepreneurial drive and a firm belief about the needs of the investment community -- as well as considerable journalistic talent.

It was his belief that the key to determining a company’s financial viability was to look at assets and liabilities, something that today’s FICO scores don’t even begin to address.

In 1909, Moody's “Analyses of Railroad Investments” described for readers the analytic principles that Moody used to assess a railroad's operations, management, and finance.

The new manual quickly found a place in successful investors' hands, giving them factual information they hadn’t had before.

In 1913, he expanded his base of analyzed companies, launching his evaluation of the bond market.

That same year, Moody began expanding rating coverage to bonds issued by the US federal government, cities and other municipalities. By 1924, Moody's ratings covered nearly 100 percent of the US bond market.

Moody's continued to publish and monitor ratings during the Great Depression, when bond default rates skyrocketed but few bonds highly-rated by Moody's missed payments.

I tell you this because there has been a single consistent in Moody’s bond ratings every year since the reports were initiated.

That one consistency is that since 1914, when Moody’s bond ratings were first established, until today, the bonds of the US Government have been top rated at Triple A levels.

Through World Wars, the Great Depression, recessions, presidential resignations, and even September 11th, nothing has shaken that top rating for America’s paper.

The other 18 Triple A rated countries include Austria, Australia, Britain, Denmark, Finland, Luxembourg, Netherlands, New Zealand, Norway, Switzerland, Singapore, Spain and Sweden.

None of those other countries have had a consistent Triple A rating since 1914.

The Triple-A credit rating of the United States is both a point of pride and global financial importance.

If the U.S. were to lose its credit rating, even by one notch, it would significantly increase the government's cost of borrowing at a time when Congress is just raising the debt ceiling yet again.

In addition, the U.S recorded a record $1.42 trillion annual deficit for 2009, which raised the total amount of debt held as a percentage of the nation's GDP to 53.8%, according to the Congressional Budget Office.

And because of that, the company that John Moody built, Moody’s Investor Services, is now warning the US that it may lose its vaunted Triple A rating as early as 2013 unless drastic measures are taken to reduce our debt.

The hidden factor in this announcement is that Moody’s is widely considered to be the most favorable rating company to the United States, often presenting the rosiest scenario.

Other rating agencies, including Standard & Poor and Fitch, typically present a more pessimistic picture, and are doing so now.

They have openly called for significant action by the US Government to reduce debt within the next twelve months as a means to avoid ratings downgrade.

Now it might be easy to presume that this situation was brought about by the collapse of the US economy over the past two years, but such would not be the case.

Rather, the increase in debt is largely the result of an extravagant spending spree by our apologist in chief, Obama and his overly compliant Congress of spineless legislators.

According to the Washington Post, Obama’s overall budget would add twice as much debt as President Bush over the same number of years.

They went on to say “President's Obama's reported budget, coming in at nearly 28 percent of GDP (the highest since World War II), significantly understates the increase in federal spending on a pure cash-flow basis.”

The federal budget deficit tripled to a record $1.4 trillion for the 2009 fiscal year that ended in October, congressional analysts said Wednesday.

(Divided evenly among the U.S. population, it amounts to $38,974.34 for every man, woman and child.)

In fact, Barack Obama’s budget deficit in October alone was greater than George Bush’s budget deficit for all of 2007.

The unprecedented flood of red ink flows from several factors, including a big drop in tax revenues due to the recession, $245 billion in emergency spending on the Wall Street bailout and the takeover of mortgage giants Fannie Mae and Freddie Mac.

Then there is almost $200 billion in costs from President Obama’s economic stimulus bill, as well as increases in programs such as unemployment benefits and food stamps.

The Congressional Budget Office estimate is bad news for the White House and its allies in Congress as they press ahead with health care overhaul legislation that could cost $900 billion over the next decade.

It gets worse. The Congressional Budget Office (a non partisan review group) projects that by the end of the decade, the National Debt will hit $24.5 trillion -- exceeding the Gross Domestic Product projected for 2019 of $22.8 trillion.

Even Obama himself is apparently concerned about the deficit.

“It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession,” Obama told reporters recently.

"I intend to take serious steps to reduce America's long-term deficit – because debt-driven growth cannot fuel America's long-term prosperity," he said in remarks prepared for delivery to the leader's meeting last Sunday at the Asia Pacific Economic Cooperation summit.

What gall Obama has, denouncing the growing deficit he largely created, while at the same time trying to ram through his $900 billion health care fiasco.

Is it any wonder that just 36% now believe that the president is doing a good or an excellent job handling the economy while 45% rate his performance in this area as poor?

Obama has accomplished the amazing feat of convincing millions of Americans that black is white, that cold is hot, that the bad economy is the fault of George W Bush, and the only things standing between America and peace on earth are those darn Republicans and greedy capitalists.

John Moody is spinning in his grave.



“We may be entering an era where the greatest dangers to the survival of Western civilization will come from internal social deterioration. Other great civilizations have declined and collapsed. We may be the first, however, to sink slowly into the quagmire, still beaming from ear to ear in self-congratulation at how ‘innovative’ we are in our social policies.” --- Thomas Sowell