Mind you, despite all this you can have a serious news piece of "someone from Moody's" claiming that they might be forced to lower the US' rating http://www.bbc.co.uk/news/business-14142621 - which frankly just sounds all kinds of ridiculous.
Also, the US owes money in currencies other than $, which the Treasury doesn't have the power to print.
I'm not saying the probability is big, but is 1% an unbelievable number? Just for reference, back in 2000 what odds would you have put on the US electing a black president before 2050? Back then, I thought that number was very close to zero.
I'm (obviously) not an analyst. I'm baffled at how they can predict return with much confidence 10 years out.
Considering that tbills are issued with "the full faith and credit" of the United States and that it's against the US Constitution to default on them, the agencies have historically rated the debt as AAA.
And yes, technically, the US could not default and still pay back worthless bonds by deliberately hyper-inflating the currency.
Doing so would also make worthless all of the private debts demoninated in US Dollars and effectively destroy the US Economy.
While it's certainly possible that could happen, it's quite remote. Quite.
For those who don't understand what's the problem with inflation so long as the bond is repaid, imagine you buy a 10-year, $1,000,000 dollar bond paying 10% interest from the Weimar Republic in 1918. You get $100,000 per year. By 1923 the Mark is worth a trillion times less than it was when you bought your bond, so the resale value is now the 1918 equivalent of $.000001 and the annual interest income is $.0000001. You complain about this to your friend, and he points out that Weimar is still rated AAA because they obviously can print an infinite amount of money to meet their obligations. Do you feel consoled? What kind of interest rate would you require to consider buying another bond?
The United States most likely won't see this kind of inflation because it doesn't have the problems Germany had, but it could certainly see enough to drop the rating to a low A if things really got out of hand.
The point is that the US treasury will pay its debt. The value of the dollar simply a different question.
By your argument (and apparently, some of the rating agencies'), a supposedly necessary downgrading of treasure bonds would require the downgrade of every existing dollar denominated bond in the world - ie, nearly every AAA bond. Oddly enough, Moody's isn't threatening to do this.
edit: Now that I think about, it isn't. They have inflation-indexed bonds as well. The more they print money, they bigger their debt grows!
http://www.treasurydirect.gov/indiv/products/prod_tips_glanc...
But the currency markets would not be so easily fooled.
You would be correct if they held debts denominated in other currencies, like virtually every other country in the planet.
I did not check this, but Zimbabwe definitely did not have an AAA rating in, say, 2008.
Anyway, seems to be a business opportunity to start issue ratings for AAA papers, as obviously there is a lot of junk AAA out there.
Now, a lower rating would result in a hirer interest, as lower ratings means higher risk (at least in theory, but what this article actually shows is that this isn't the case).