Moody’s Confident About U.S.

Moody's Investors Service on Friday affirmed its Aaa credit rating on the United States. The action considers the country’s ability to survive the credit crisis, its political stability and favorable long-term economic prospects.

Though the rising debt burden could threaten the creditworthiness of the world's largest economy, much of the debt the country is accumulating is backed by equity and securities purchases, which lessens the negative effect on the government's net worth.

According to the nonpartisan Congressional Budget Office, the U.S. government and the Federal Reserve have injected about $12 trillion to revive the economy and credit markets. As a result, the budget deficit is expected to reach $1.6 trillion this year and $1.4 trillion next year. In its mid-year economic review, the Office of Management and Budget increased its estimate of the 10-year deficit by almost $2 trillion from the previous level to $9.05 trillion.

The U.S. government has also invested hundreds of billions of dollars to rescue many financial institutions including American International Group (AIG - Analyst Report) and Citigroup (C - Analyst Report) as part of its goal to stimulate the economy. These spending programs have also increased debt.

Most banks still have short-term debt guaranteed by the government. However, some large financial firms have repaid the government funds, including Morgan Stanley (MS - Analyst Report), Bank of New York Mellon Corporation (BK - Analyst Report), Goldman Sachs (GS - Analyst Report), U.S. Bancorp (USB - Analyst Report), American Express Company (AXP - Analyst Report), BB&T Corporation (BBT - Analyst Report) and State Street Corporation (STT - Analyst Report). The repayment of government money can be viewed as a sign of recovery of the institutions as well as the economy.

Given the U.S. economy’s relatively decentralized fiscal structure, Moody’s considers the federal government debt ratios most relevant to the rating. According to the rating agency, the ratios of general government debt to gross domestic product (GDP) and to revenue are deteriorating sharply, and this trend will continue at least through 2010. After the crisis they are likely to be higher than the ratios of other top credit-rated countries. However, a substantial portion of the deterioration results from asset purchases, which does not have a major impact on the net worth of the federal government.

According to the agency, the budget deficit will fall to about 4% of output by 2015, improving the ratio of debt to gross domestic product to 77% in 2019, the highest level since World War II.

Read the full analyst report on AIG

Read the full analyst report on C

Read the full analyst report on BK

Read the full analyst report on GS

Read the full analyst report on USB

Read the full analyst report on AXP

Read the full analyst report on BBT

Read the full analyst report on STT