Posted on 03/28/2010 12:17:48 PM PDT by Conservative Coulter Fan
America’s current predicament is that it borrows money from countries or individuals to finance many of its expensive obligations, including financing the $862 billion stimulus bill as well as the wars in Iraq and Afghanistan. But what would happen if America had to pay higher interest rates on all future borrowing? This is the question that some people in the federal government have to ponder, as influential rating agencies such as Standard & Poor’s and Moody’s have both recently voiced their view that America’s AAA rating is not guaranteed or in fact even assured. The massive and growing debt obligation makes some professionals question whether this country’s rating may soon be lowered.
A downgrade in America’s credit risk would mean paying higher interest on additional borrowing, thus making borrowing much more expensive. Just as importantly, it would signify a change in perception of quality about the American economy and by extension of the world economy.
Moody’s softened the impact of their statement by being clear that a downgrade is not likely but just a possibility, and similarly Treasury Secretary Timothy Geithner has said that he is confident that that will not happen. The purpose of talking about this unpleasant possibility is to remind policymakers in Washington that it is important to address America’s fiscal deficit and debt. However, the fact that this possibility is being talked about and discussed should be seen as a warning, if not an ebbing sign for concern.
Although the federal government has trillion dollars of debts to pay off and for the last couple of years America has had a budget deficit, it is difficult for Americans to imagine U.S. debt as being anything but totally risk free. Yet this just might be the reality America may one day face if politicians in Washington continue to spend with reckless abandon, seemingly funding everything in sight, and with little regard for how much money they actually have to work with.
Aleksey Gladyshev currently is a member of the Young Leaders Program at the Heritage Foundation.
The ONLY real question is how long does the government last at Aa and A before falling to Baa? Or does it tank all the way to Ba (only 0.8% of municipalities get Ba ratings)?
Yep. Governments first finance their operations by taxing the present. Then they tax the future by borrowing. Finally, they tax the past by inflating the currency (sapping the value of money that you have earned in the past). We have made more promises than we have money to meet those obligations. The government could seize wealth in order to cover their spending, but you can’t do that forever. I don’t see any other future but a collapse of the dollar if we continue down this path.
I’m going to have to stock up on my maps from AAA while they’re still around.
Lets hope so. As soon as America falls flat on its face primarily due to Obama’s anti-american policies, the sooner we can build ourselves back together, stronger than ever.
Why would anybody trust Moody’s to rate anything anymore?
I think that this fascist administration is putting great pressure on the ratings companies to not lower the rating...
A trillion dollars will be a rounding error before this is all over.
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