(Update) The coming GOPocalypse

Posted by AzBlueMeanie:

Moody's Investors Service announced Wednesday afternoon that it has put the United States' Aaa bond rating under review "for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations." Moody's reviewing U.S. bond rating for downgrade – Political Hotsheet:

The announcement serves as a warning shot to lawmakers to act quickly to get a deal to raise the country's $14.3 trillion debt limit before Aug. 2. That's the date that the Obama administration says that the U.S. will hit its debt limit and no longer be able to pay its obligations, causing economic catastrophe.

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Moody's, one of the three big ratings agencies, said it was also reviewing the Aaa ratings of Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks because of their connection to the U.S. government as well as securities linked to the government or those financial institutions.

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Mark Zandi, chief economist of Moody's Analytics, told CBS News the move wasn't a surprise — but it is a big deal.

"This is it," he said. "If policymakers don't get it together in the next couple of weeks and raise the debt ceiling, financial markets will be thrown into turmoil and the economy into recession."

Former Former Federal Reserve Governor Rick Mishkin told CBS News that "this is basically the messenger coming and saying there is a real problem here — and if you do not doing anything..things will get very difficult indeed."

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"An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate," the agency said. It added that if even a short-lived default occurred, "A return to a Aaa rating would be unlikely in the near term." 

And Bloomberg News adds Moody’s Will Cut 7,000 Top-Rated Munis If U.S. Downgraded, Reviewing More – Bloomberg:

At least 7,000 top-rated municipal credits would have their ratings cut if the U.S. government loses its Aaa grade, Moody’s Investors Service said.

An “automatic” downgrade affecting $130 billion in municipal debt directly linked to the U.S. would occur if the federal level is reduced, Moody’s said yesterday in a report. Additionally, top-rated securities with no direct links to the national government will be reviewed for similar action.

Municipal debt including mortgage-backed bonds secured by the U.S. or agencies such as Fannie Mae and Freddie Mac, would be trimmed with the federal government, Moody’s said. It didn’t provide a total value for other state and local credits that may be affected, including housing authorities and nonprofits.

“Between now and the end of July, we’re going to evaluate all of those issuers using the same quantitative metrics that we have developed,” Naomi Richman, Moody’s managing director of public finance, said yesterday by telephone from New York about the indirectly linked securities.

Raising the federal debt ceiling limit has always been automatic since it was first enacted during World War I. Congress has a constitutional duty to honor the debts of the United States under the "full faith and credit clause" of the Constitution, and Section 4 of the 14th Amendment to the U.S. Constitution. Default is not an option.

This is a crisis entirely of the GOP's making. The GOP is using the federal debt ceiling limit as leverage in their hostage taking to extract extortion from the Democrats and President Obama. This faux "crisis" can be resolved with a simple one sentence amendment raising the federal debt ceiling limit as has been done numerous times in the past. It can be accomplished in five minutes.

But the Tea-Publican economic terrorists holding America hostage are willing to kill the hostage and commit economic suicide by defaulting on the U.S. debt, in violation of their constitutional duty, for the first time in U.S. history.

UPDATE: If America’s credit rating falls, it’s taking a lot more than just Treasury securities with it. It’s going to take the whole credit market with it. Which, as you’ll remember, is exactly how the subprime housing sector took the economy down in 2008. How default would harm homeowners, cities, businesses and everyone else – Ezra Klein. A must read.