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The credit worthiness of the United States is deteriorating rapidly and may lead to a credit rating downgrade.

In our 2009 forecast, we mentioned that the United States may be downgraded this year.  The trillions of dollars being pumped into a dying financial system will have its consequences. The treasury is expected to issue $2 trillion in bonds this year and $4.2 trillion over the next two years. Who will buy this debt?

Foreigners can usually be counted on to acquire $200 billion per year of US treasuries, which is substantial when you run a $400 billion deficit as in 2008. With the expected 2009-2010 deficits to hit $1.5 trillion per year, one has to wonder where the money will come from? Even if foreign buying of US debt doubles next year, there will still be a deficit of about $1 trillion, which will have to be raised domestically. It doesn’t seem possible. Even when the economy was expanding, the US never raised so much domestically.

Moodys recently raised their concern. “By the end of a two year period, the U.S. debt ratios will be higher and moving the country’s metrics to the lower end of the pack…this triple rating isn’t assured forever.” said Steven Hess, sovereign credit analyst at Moody’s.

Moodys has outlined that US debt for 2008 stands at 41% of GDP which, they feel, is cause for concen. Even more concerning is the expectation of the percentage to rise to 62.4% by 2010.

I think that Moodys is vastly understating the problem. Debt as a percentage of GDP, I would argue, is not nearly as important as debt as a percentage of REVENUE. The US government doesn’t take in total GDP to pay its bills. They pay them with the revenues from the GDP, which stand at about $2.5 trillion per year.  The government will spend all of that plus another two trillion they don’t have, and likely won’t be able to raise through selling treasuries. Sounds like “Helicopter Ben” will be busy on the printing press.

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