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U.S. bonds get AAA rating with asterisk

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KAI RYSSDAL: The housing slump and the subprime crisis have laid ruin to lot of credit ratings lately — from some of the country’s biggest financial institutions to the millions of Americans facing foreclosure. But here is a name that has managed to emerge with a clean rating: Uncle Sam. Both Standard & Poors and Moody’s have reaffirmed their triple-A ratings for bonds issued by the gold old US-of-A. The Treasury bill is widely viewed by investors as being risk-free. So it’s probably worth noting that Moody’s did attach a note of caution to its triple-A rating. Our business correspondent Bob Moon explains.

BOB MOON: Uncle Sam has enjoyed the highest possible credit rating ever since Moody’s started its rankings in 1917. But the ratings agency is warning that the government needs to start facing the music on health care and Social Security spending.

In its report on the country’s so-called “sovereign debt rating,” Moody’s says the world’s largest creditor risks losing its triple-A rating within the decade, if it doesn’t get control of its entitlement programs.

A spokesman for the ratings agency told Marketplace the chance of a downgrade is very remote and he stressed it’s still a long-term issue.

Jagadeesh Gokhale is a scholar at the Cato Institute. He says the problem is much more urgent than Moody’s is making it out to be:

Jagadeesh Gokhale: You know, the Social Security and Medicare administrations have estimated that the imbalances of these two programs amount to something like $90 trillion. So we’re looking at multiples of annual output of the U.S. that has to be sacrificed to make these programs whole. Which is a huge cost.

Gokhale complains that Moody’s seems to suggest there’s plenty of time to fix the problem. But he figures that by acting now, the country could save more than $30 trillion.

If this all sounds like something you’ve heard before, politicians have been talking about it for years.

PRESIDENT BUSH: The spending for these programs has been growing faster than inflation, faster than the economy, and faster than our ability to pay for them.

That was President Bush almost two years ago. Now, some analysts are saying they hope the warning from Moody’s might put some pressure on candidates from both parties and make them pay more attention to the problem.

In Los Angeles, I’m Bob Moon for Marketplace.

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