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Moody’s (NYSE:MCO) lead analyst covering US debt said that the Amercan goverment could lose its “AAA” rating if it cannot cut the deficit and budget gaps in the next three to four years.

Steven Hess told Reuters: “The Aaa rating of the U.S. is not guaranteed.” The current rating should be stable for at least 18 months.

It was only earlier this year that the UK government got a similar warning from credit agencies.

China expressed concern to Secretary Geithner that it does not have an unending appetite for US Treasury paper. At some point the People’s Republic will not be willing to risk a larger part of its $2 trillion reserves on debt that it believes has some risk, albeit a small one, of defaulting.

One thing that is nearly certain is the the US government will end up paying much higher interest rates for its debt as it needs to fund its own interest payments starts to join the need to fund the principal. There is also that very real risk that American debt will begin to crowd private debt out of the global capital markets, raising interest costs for all borrowers.

Both Ben Bernanke and Geithner have said that the deficit must come down, but government spending and stimulus costs are actually rising. Only yesterday, the Administration suggested a new program to help small businesses. With growing unemployment, it is unlikely the IRS receipts will rise.

The Moody’s comments may not mean much for three years, but they could start to roil the capital markets much sooner.

Douglas A. McIntyre