CREDIT rating agency Moody’s said yesterday that the US should scrap its debt ceiling entirely. The legislative cap creates “periodic uncertainty”, Moody’s argued, suggesting that America could adopt a “fiscal rule” to restrain deficit build-ups instead.
The statement preceded another day of political sparring in the US.
The possibility of America defaulting on its debts is “off the table”, US treasury secretary Timothy Geithner claimed yesterday in an optimistic statement.
Yet the White House later rebuffed a Republican plan to force future federal governments to balance their books, showing that progress in the crunch talks remains slow.
President Obama will veto the plan on the off-chance that it gets through both House and Senate.
The Moody’s recommendation to abolish the debt ceiling was criticised by Tory MP Sajid Javid, who has launched a bill to introduce similar limits on government debt in the UK.
“A self-imposed limit forces governments to act before the market closes in itself,” Javid told City A.M.
“However difficult the situation in the US, it would be a lot worse if it was allowed to get close to a market imposed limit,” said Javid, who spent 20 years working in London’s financial markets.
“Compare it with what’s happening in Italy and Greece,” Javid added.