The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.
Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.
The portion of tax revenue that goes to service U.S. debt is only going to climb as the U.S. will have to issue even more debt to replenish what was spent from the Social Security trust fund.
Anyone buying U.S. Treasury bonds now is asking for trouble. Any academic arguing that the U.S. 10-year bond's interest rate is a "risk-free rate" needs to revise their theories. Perhaps we can replace it with another risk-free rate for debt denominated in a more stable currency, like the Swiss franc.
