Moody's saying that if there's no imminent progress on the debt ceiling fight, the US credit rating will be cut.
If the legal borrowing limit is not increased, US credit rating will be downgraded.
This news comes after Standard and Poor's had cut its long-term outlook on US debt to negative on April 18th.
The US current credit rating is AAA.
A downgrade, which would leave Germany and France with a higher rating, would erode the status of the United States as the world's most powerful economy and the US Dollar's role as the dominant global currency.
Even if a downgrade is unlikely, it's enough to scare investors from holding or buying dollars.
Here's an excerpt from the report that Moody's Investors service published today:
These developments have the following rating implications.
1) The likelihood that Moody's will place the US government's rating on review for downgrade due to the risk of a short-lived default has increased. Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely. The Secretary of the Treasury has indicated that the government will have to drastically reduce expenditure sometime around August 2 if the debt limit is not raised; the initiation of a rating review would precede this date.
2) If a debt-ceiling-related default were to occur, Moody's would likely downgrade the rating shortly thereafter. The extent of and length of time before a downgrade would depend on how factors surrounding the default affect the government's fundamental creditworthiness, including (a) the speed at which the default were cured, (b) an assessment of the effect of the default on long-term Treasury borrowing costs, and (c) measures put in place to prevent a recurrence. However, a rating in the Aa range would be the most likely outcome. Any loss to bondholders would likely be minimal or non-existent, as Moody's anticipates that a default would be cured quickly.
3) If default is avoided, the Aaa rating would likely be affirmed after any review. Whether the outlook on the rating would be stable or negative would depend upon whether the outcome of the negotiations included meaningful progress toward substantial and credible long-term deficit reduction. Such reduction would imply stabilization within a few years and ultimately a decline in the government's debt ratios, including the ratio of debt to GDP.