However, in Longer Term, Credit Rating Agencies Have Begun to Worry About USA Inc.’s Debt Affordability On balance, we believe that the ratings of all large Aaa governments [including USA Inc.] remain well positioned, although their ‘distance-to-downgrade’ has in all cases substantially diminished...Growth alone will not resolve an increasingly complicated debt equation...Preserving debt affordability at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion. ' - Pierre Cailleteau Managing Director of Sovereign Risk at Moody’s, 3/16/2010 .../f 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. 2 Sarah Carlson, Senior Analyst at Moody's, 1/14/2011 KP Sources: 1) Bloomberg, The New York Times; 2) The Wall Street Journal i USA Inc. | Consequences of Inaction 419 Treasury Swap Spread’ Turned Negative For First Time in History? — Now Cheaper for Some Private Companies to Borrow than USA Government 10-Year Treasury Swap Spreads & Federal Budget Deficit / Surplus, 1988 — 2010 160 ees x) 10 -— 2% = cy | LL 8 & 120 0% 3 8 100 ik a 8 ; ae AN Ne hm ‘a so N™ ss " [' — aS Pe WW IW 2 60 hea Mh mii al 26 > ¥ t "e a vo MY an A || @ 40 la lal eV) we a aL Wash a a } a% § 5 20 h Lh ° 3 _ re 0 y fy -10% a > -20. ee s__ 42% 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 — 10y Treasury Swap Spreads (left axis) -==—=Federal Budget Deficit/Surplus as % of GDP (right axis) Note: 1) Treasury swap spread = Treasury yield — swap rate (between bonds of comparable maturity); swap rate is the fixed interest rate that the buyer demands in exchange for the uncertainty of paying the short-term LIBOR (floating) rate over time; swap rates are generally higher than Treasury yields with corresponding maturities as they include incremental credit risk associated with the banks that provide