Moody's says debt threatens U.S. rating

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NEW YORK, Sept. 11 (UPI) -- Moody's Investor Services said Tuesday it may lower the U.S. credit rating if Washington does not stabilize and then begin a "downward trend" for federal debt.

The credit rating agency said budget negotiations in 2013 "will likely determine the direction" of the country's credit rating, and said it would expect to put the rating on negative outlook until the budget negotiations were complete.

"If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to gross domestic product over the medium term, the rating will likely be affirmed and the outlook returned to stable," Moody's said in a news release.

On the other hand, "if those negotiations fail to produce such policies ... Moody's would expect to lower the rating, probably to Aa1," the agency said.

If Moody's reduces the U.S. rating, it would be the second of the big three credit rating agencies to do so. Standard & Poor's downgraded the country's credit rating in 2010.

S&P received substantial criticism for doing so, especially as the downgrade was quickly followed by a sharp drop in equity markets, the Los Angeles Times reported.

The national debt is above $16 trillion -- larger than the gross domestic product.