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Kai Ryssdal: The credit markets are all about ratings. You get good ones, like Triple A, the very best, you pay less to borrow money. That’s true for companies. And it’s true for governments. So this morning when an analyst for Moody’s said he’s been taking a long hard look at the federal deficit and that America’s Triple-A rating isn’t a sure thing, it was most unwelcome news. Paying more to borrow the trillions that the Treasury Department needs to finance the stimulus bill and the bailouts is not a happy prospect for Washington or individual investors. Marketplace’s John Dimsdale reports.
JOHN DIMSDALE: Uncle Sam has always been considered the world’s safest borrower. Rating agencies figure he’s good for his debts. But the White House is forecasting trillion-dollar- plus deficits through 2011. And David Jones, a former Fed official and now with DMJ Advisers, says the U.S. should heed today’s warning from Moody’s.
DAVID JONES: There will be a moment, we can’t define it perfectly, when the world says we don’t want to see any more of that debt. Interest rates will shoot up and the dollar will collapse. So we have a moment of truth coming here.
Individual investors who sought shelter from the financial headwinds by putting their money into Triple-A Treasury bonds might be dismayed. But David Kotok says it’s highly unlikely the Treasury will default on its bonds, since it can just ask the Federal Reserve to print money.
Kotok is the chief investment officer at Cumberland Advisers in New Jersey. He says there are alternatives for risk averse investors, like bonds backed by state and local governments.
DAVID KOTOK: And a good example of an issuer that is very safe is the New Jersey Turnpike. They issued taxable municipal securities to fund some of their activity and those bonds pay a higher interest rate than the corresponding Treasury bonds.
Kotok figures the revenue for those bonds is pretty secure, since there’s no other choice for people who drive between New York and Delaware.
In Washington, I’m John Dimsdale for Marketplace.