No matter what the agencies say, we need growth. Then deficit reduction. In that order.

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Before January 1, Washington has two choices. The first option is to do nothing. The Bush/Obama tax cuts would expire. The Budget Control Act would cut spending, as scheduled. In this scenario, the U.S. economy could fall into recession.

The second option is to do something, anything, to avoid the so-called "fiscal cliff." That might include extending the tax cuts in some form, pushing off spending cuts, or enacting some combination of the two. But this scenario has its own downside: Moody's said yesterday it would downgrade our credit rating from a sterling AAA if the agency isn't properly convinced of our seriousness to cut the deficit.

In other words: The choice might be between double-dip and downgrade. Here's the Moody's threat, verbatim:

If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable, says Moody's. If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to AA-1.

Does Moody's matter? For the price of U.S. debt, maybe not. After S&P's downgrade of the U.S. last year, we all watched U.S. bond yields fall in defiance of the decision. The U.S. isn't stuck between a rock and a hard place. We're stuck between a rock, the recession, and an almost-kinda-soft place, the potential of a downgrade. The latter could have no impact. A recession would. The CBO projected that going over the fiscal cliff would push unemployment back to 9%, while real GDP would fall by about 3% in the first six months of 2013.

Surveying this mess from the perspective of a progressive deficit hawk, I have three conclusions:

(1) Moody's is maligned, but they're also right. AAA ratings are reserved for countries with essentially no perceivable risk of default. With this Congress, and these parties, barely a year removed from a showdown where we nearly defaulted on purpose, could you really call U.S. debt "risk-free"?

(2) For a long time, I thought we would eventually strike a deal to save about $4 trillion with a combination of tax increases, spending cuts, and entitlement changes that included both. Now I'm not so sure. Congress' capacity to do big things is small. Its capacity to do small things at the last minute is big. That suggests that deficit reduction will look less like One Big Deal and more like many little deals, passed over time, that slowly cut spending, slowly raise taxes, and even find savings in health care.

(3) Debt to GDP is the metric we use to evaluate the danger level of a country's borrowing. But I think too many people focus on the numerator of debt and too few on the denominator of GDP. If you're not growing, it doesn't matter how balanced your budget is: Your debt/GDP ratio still can't get any better. We need growth. Then deficit reduction. In that order.