Moody’s suggests eliminating debt ceiling

The United States should eliminate the debt ceiling altogether, Moody’s said in a Monday report.  

“We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,” Moody’s analyst Steven Hess wrote in the report, first reported by Reuters. 

{mosads}The congressional role in setting a limit on debt creates “periodic uncertainty” over the government’s ability to meet its obligations, Moody’s said.

Last week, Moody’s warned it would cut the AAA credit rating held by the United States if the government can’t cover its debts and if congressional negotiators and the White House fail to raise the $14.3 trillion debt limit by Aug. 2. Standard & Poor’s issued a similar warning last week. 

Moody’s, which noted that the debt limit hadn’t done much to stop rising government obligations, said it has always considered the risk of a U.S. default to be very low because Congress has regularly raised the debt ceiling, usually on a bipartisan basis and without much controversy. 

White House Budget Director Jack Lew said Sunday he’s confident the Obama administration and Congress can move forward on, at the minimum, raising the debt ceiling by the default deadline.

On ABC’s “This Week” on Sunday, Senate Minority Whip Jon Kyl (R-Ariz.) said Senate Republicans weren’t going to let the nation default on its debt and would figure out a way to avoid default. 

Republican Sen. Lindsey Graham (S.C.), however, said he plans to support the House’s more comprehensive “Cut, Cap and Balance” plan, which won’t have enough support in the Senate to serve as an immediate option to avoid default before August.

In addition, Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) are crafting a plan that would raise the debt ceiling in short-term increases. 

Lew reiterated on Sunday that President Obama won’t accept a short-term increase, even for as long as a year, because of the uncertainty it injects into the markets and the fragile economic recovery. 

Without a debt-ceiling increase, Federal Reserve Chairman Ben Bernanke said interest rates would rise across the board, hitting mortgage rates and the government’s debt, further hurting the recovery and the U.S. ability to pay its bills.