Two and a half years ago, when Standard & Poor’s first applied a negative outlook to the long-term credit rating of the United States, the Deseret News editorial page said, “Rubber, meet road.”
Washington was stuck in a stalemate over philosophies. Democrats wanted to tax the rich more and Republicans wanted to cut spending and reform entitlement programs. And while they fiddled, the nation’s position as the world’s leading economy was burning.
Well, it appears politicians in Washington aren’t fazed by rubber. Some don’t even seem to care if “rubber” describes the checks the nation may soon be writing to pay its bills.
This week, a second major credit-rating agency, Fitch, warned the United States it likely would downgrade its rating unless a deal is reached soon to avoid the debt ceiling deadline. Some Republicans have discounted the deadline, saying it is a concoction of the Obama administration and that the real deadline for raising the ceiling is at some later date. But this move ought to be a sobering indicator of what financial markets think.
More than just the debt ceiling, though, Fitch is worried about the nation’s long-term debt outlook, which is something Congress is unlikely to confront even if it avoids the debt ceiling (a settlement to the shutdown may be announced later today).
The more the United States backs away from its triple-A credit rating, the more expensive it becomes for the nation to borrow money. That would result in tighter credit, higher mortgage rates and higher interest on business and personal loans. Companies might have to downsize. The economy could fall into another recession. And the dollar’s position as the world’s leading currency could become a thing of the past.
If you look really hard, there is some good news. Back in 2011, Standard & Poor’s said part of its concern was that it believed the national debt would climb to 84 percent of gross domestic product by 2013. In fact, it is forecast to be only 76 percent of GDP by the end of this year.
This Deseret News story reports it will likely decrease a bit until 2015, then rise back to 76 percent by 2020. That is, if nothing changes in how the nation taxes and spends.
So we’re doing better than the dire predictions of two years ago, but just a little.
I understand the value of a good political bargaining chip, especially if you’re the minority party controlling only the House. But this sort of brinkmanship, again and again through the years, is not good for the nation’s standing in the world. Ultimately, that will go beyond the economy and affect national security.