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For the second time in less than two months, a private US credit rating firm Thursday threatened to downgrade the top status of the US government's borrowing ability unless it resolves its budget crisis.

Moody's Investors Services said on its website that if there was “no progress ... in coming weeks” on lifting the current 14.3-trillion-dollar debt limit, it would review the US government's current Aaa rating.

The outcome could be a “possible downgrade, due to the very small but rising risk of a short-lived default,” Moody's said.

In April, Standard & Poor's rating agency lowered its long-term outlook for US credit to negative but kept in place Washington's high AAA/A-1+ rating for the time being, with a threat to downgrade if no resolution is found.

The US government has already reached its borrowing limit. Congress has until August 2 to reach an agreement on the matter. In the interim, the Treasury Department is deploying stop-gap measures.

A lowered credit rating would increase the amount of interest the government must pay to borrow money. If the country defaults on its debts, experts project catastrophic consequences for the economy.

On Tuesday, the Republican-dominated Congress rejected the request by US President Barack Obama, a Democrat, to raise the debt ceiling so that Washington can continue to pay its debts, a routine request normally approved by Congress.

The issue of government spending has become a political hot potato poised to dominate the 2012 presidential election campaign. In the more immediate future, it could cause gridlock.

“Although Moody's fully expected political wrangling prior to an increase in the statutory debt limit, the degree of entrenchment into conflicting positions has exceeded expectations,” the ratings agency said.

Vice President Joe Biden is moderating negotiations between the two sides. Moody's said it fears that if no deal is reached in the coming weeks, the opportunity will pass for any deficit reduction for another 18 months, meaning the duration of the 2012 election campaign.

“Therefore, failure to reach an agreement as part of the current negotiations would increase the likelihood of a negative outlook in the near term, because the upward budget trajectory would still be in place.

“At present, this appears the most likely outcome, in Moody's opinion,” the ratings agency said.

Moody's however suggested that a temporary raising of the debt limit would allow negotiations to continue for a long-term deal, and said this could delay its move to downgrade the rating.

Obama has outlined a plan to reduce federal deficit spending by 4 trillion dollars by 2023, by making cuts across the government and ending Bush-era tax breaks on the highest income households.

But Republicans want deeper cuts in spending and have vowed to block any attempt to raise taxes. The Republican plan would cut the deficit by 6 trillion dollars in the same 12-year period while keeping the tax breaks in place and cutting back on medical care for the poor and elderly. - Sapa-dpa