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U.S. Aaa Hinges on Budget as Debt Ceiling Looms, Moody’s Says

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Dec. 26 (Bloomberg) -- The negative outlook on the U.S.’s Aaa rating will likely be resolved based on budget negotiations as the nation eventually raises its debt ceiling, according to Moody’s Investors Service.

“We expect the government will act to raise the limit, as it has done on many occasions in the past,” Moody’s said today in a statement. “Our view is that the probability of a missed interest payment on Treasury bonds is extremely low.”

The U.S. Treasury Department said it will reach the debt limit on Dec. 31 and begin employing extraordinary measures to finance $200 billion in deficits in 2013. Republicans are renewing attempts to use a debt-limit increase to force deeper spending cuts, replicating the 2011 showdown that caused the U.S. to come within days of default and in part spurred a downgrade by Standard & Poor’s.

Treasury said in a letter to Congress that “given the significant uncertainty” that exists for unresolved tax and spending policies, it isn’t possible to predict how long these measures will last.

Under “normal circumstances,” $200 billion would last the government about two months, Treasury Secretary Timothy Geithner said in a letter to Congressional leaders.

Moody’s said Sept. 11 that it may join S&P in downgrading the U.S.’s credit rating unless Congress next year reduces the percentage of debt-to-gross-domestic-product during budget negotiations.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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