S&P and Moody's Warn on U.S. Debt

Moody's Investors Service said in a report Thursday that the U.S. will need to reverse an upward trajectory in the debt ratios to support its triple-A rating.

"We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase," said Sarah Carlson, senior analyst at Moody's.

At a conference in France, Carol Sirou, head of S&P France, said "The view of markets is that the U.S. will continue to benefit from the exorbitant privilege linked to the U.S. dollar, But that may change. We can't rule out changing the outlook" on the U.S. sovereign debt rating in the future.

The debt situation is at worrisome levels at the federal, state and local levels. Senior players I have spoken to in recent days tell me that they see no way out, it is going to result in a major crisis. Problems at the state level are likely to develop first.