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Moody’s Swings

Can someone tell me why the same guy, at the same ratings agency, does a 180 in less than one week, when the deal hasn’t changed an iota?
December 7, 2010:

Moody’s Says Tax Rates Won’t Lead to U.S. Downgrade

By Susanne Walker – Dec 7, 2010 3:15 PM ET Tue Dec 07 20:15:11 GMT 2010

Moody’s Investors Service Inc. said an extension of the Bush-era tax cuts agreed upon by President Barack Obama won’t lead to a downgrade of the nation’s Aaa credit rating.

“The extension of the current tax rates is for a temporary period of two years and we think that if that’s all there is to it — it does not have ratings implications,” Steven Hess, senior credit officer at Moody’s in New York, said in an interview today. “We have a stable outlook. We don’t feel it will get changed downward in the next year or two.”

Obama announced yesterday he’ll accept a deal that would extend current tax rates for high-income taxpayers for two more years in exchange for extending federal unemployment insurance for the long-term jobless and cutting the payroll tax by $120 billion for one year.

“We think it will be positive for economic growth in 2011 and 2012,” Hess said.

December 13:

Moody’s says tax cut deal risks U.S. credit rating

By Erik Wasson – 12/13/10 04:34 PM ET

Moody’s Investors Service said in a Monday report that the tax-cut deal hammered out between President Obama and congressional Republicans jeopardizes the Aaa credit rating enjoyed by U.S. Treasury bonds. The package could add $900 billion to the national debt, if it is made permanent, and this increases the chances the U.S. would one day default on its debt.

“From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth. Unless there are offsetting measures, the package will be credit negative for the US and increase the likelihood of a negative outlook on the US government’s Aaa rating during the next two years,” Moody’s analyst Steven Hess writes.

Hess writes that the higher economic growth from the tax cuts and unemployment benefits might be substantial, but the effect of the growth on budget deficits will be less than the effect of the foregone revenue and increased spending.

He notes that the Congressional Budget Office has found that the package would raise the ratio of debt-to-gross domestic product from 61.6 percent to 68.5 percent by 2012.

Update: Bmull, from the comments:

The answer is that these reports are written to serve the interests of the client. And the client in this case is the U.S. government. Last week the big concern was selling the tax cuts. Now that that’s done, Obama is pivoting to tax reform and deficit reduction. In each case, Moody’s produces a report tailored to the message.

Update II: Hess has flipped before.

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Jane Hamsher

Jane Hamsher

Jane is the founder of Her work has also appeared on the Huffington Post, Alternet and The American Prospect. She’s the author of the best selling book Killer Instinct and has produced such films Natural Born Killers and Permanent Midnight. She lives in Washington DC.
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