Moody's Investors Service appears to have put US policymakers, who are battling to find a solution to the country's economic woes, to a more severe test by warning that the United States could lose its top-notch credit rating in the next few weeks if Congress does not agree to raise the federal debt ceiling.

But the warning appears soft compared with the way Moody's has dealt with European economies.

US Federal Reserve Chairman Ben Bernanke has hinted at playing his trump card - the third round of quantitative easing, or the infamous QE3 - although it may not prove to be effective.

Commentators see it as a strategy to talk up the market and get a bargaining chip for the government to prompt Congress to cooperate and raise the federal debt ceiling by Aug 2 and prevent the US from defaulting on its debt. But it also shows how ineffective the US has been in tackling its economic problems.

In late 2009, the Fed launched QE1, which ended in March 2010, after which it started QE2. The result: the jobless rate dropped a bit but has remained high. It rose to 9.2 percent in June from 9.1 percent in May. Other indicators, too, point to a still gloomy economic scenario.

Against this backdrop, it seems appropriate that Moody's is reviewing the country for downgrade. But then it is only a warning. Besides, even after the US has sent out the message of continuing its irresponsible monetary easing - which is likely to increase inflation and possibly create asset bubbles in other parts of the world - it can maintain its top rating status, and that too by relying on printing more money to buy into its debt.

The same rating agency downgraded Portugal's sovereign debt by four notches to Ba2, or "junk", from Baa1, inviting condemnation from Portuguese leaders. Critics say that Moody's ignored the "unified support" across the country for its financial rescue plan and the pledge to cut the deficit. In the latest case, Moody's has cut Ireland's rating without prior warning, forcing European Union officials to call for "waging a war against rating agencies".

Such discrepant ratings have even raised doubts over the role the rating agency plays in the competition between the world's largest economy with the most important currency and the EU with a currency that is the only one that could challenge the role of the greenback.

Behind the "currency war", however, is the obvious fact that in recent years the two major economies have lost their growth luster, which has prompted them to resort to "financial innovations" to keep their economy rolling until a financial crisis interrupts the process.

Now it's time for both to take painful but necessary measures - impose fiscal discipline, fix the financial sector, pay more attention to the real economy, and above all, agree to solve problems instead of making panic-driven responses - to arrest the decline of their economies.

(China Daily 07/16/2011 page5)