If you’ve noticed a bit of a dip in the stock market today, one of the reasons is the new report from Standard & Poor’s debt rating service, which downgraded the outlook for United States government debt from “Stable” to “Negative.”
This isn’t an actual downgrading of our debt rating – you’ll know right away when that happens, because you’ll see toads, blood, and stockbrokers raining outside your window. Rather, it’s meant as a warning – to both investors and the U.S. government. It means there is a one-in-three chance the United States will lose its AAA credit rating in the next two years.
Although S&P believe America’s economic strengths “currently outweigh what we consider to be the U.S.’s meaningful economic and fiscal risks and large external debtor position,” they have begun to doubt those strengths will “full offset the credit risks over the next two years.” They’re worried about our high level of debt, and while they appreciate the beginning of a serious conversation between the parties about deficit reduction, they “see the path to agreement as challenging because the gap between the parties remains wide.” They probably were not reassured when President Obama threw a temper tantrum on stage at George Washington University and insisted that uncontrolled government spending is the key to patriotism.
Naturally, the clueless crowd at the White House – the people who brought you a “new normal” of high unemployment and soaring gas prices – dismissed the report as so much balloon juice. Austan Goolsbee, chairman of the Council of Economic Advisers, is quoted by MSNBC as saying Standard & Poor is “making a political judgment, and it’s one we don’t agree with.” Oh, good, so our credit rating is safe as long as Austan Goolsbee protects us by sneering at the “political judgment” of the guys who actually issue that credit rating.
The loss of our AAA credit rating would deal profound damage to an already rickety federal budget. We’re paying hundreds of billions in interest every year on over $14 trillion of debt. A lower credit rating would raise the interest on that debt by billions of dollars, as well as making foreign buyers less eager to purchase American dollars. If the government responded by printing more money, it could trigger the kind of hyperinflation spiral that ends with hundred-dollar loaves of bread. No one should be under any illusions about the ability of the current Administration to resist the temptation of printing money to escape a fiscal crisis.
Liberal Democrats won’t pay a moment’s heed to the dire warnings from Standard & Poor. Instead, they’ll draw the exact opposite of the proper conclusion, and use the report as a club to beat anyone who resists raising the debt ceiling next month. They should read S&P’s statement more carefully. The analysts don’t think our problem is that we’re not borrowing enough money.
America, and its liberal elite, will learn the meaning of the word “unsustainable” when Standard & Poor chooses to advise the investors of the world to stop sustaining them. That decision will not be subject to the approval of Barack Obama or any of his advisors.
