The United States' debt is not in imminent danger of losing its high triple-A rating. But in a Moody's report on Monday, analysts said the our margin for error has "substantially diminished." In other words ... what exactly? Are are standing at the edge of a precipice overlooking calamity, or is Moody's just putting its hands on its hips and shaking its head like a worldly mom tsking her son on the playground?
I wanted to know. So I phoned Brookings' debt expert Douglas Elliott to ask three simple questions:
1) Does this report matter at all, or does it tell what we already know, which is that the debt is still tomorrow's emergency?
Any time that you have a rating agency say that the US government might not be triple-A rated, it's of some importance. But I really don't see our rating moving any time soon. I guess you could say it's still tomorrow's problem.
2) From a Fortune write-up, I read: "In the case of the United States, interest payments on general government debt -- combining the federal government with the states -- could rise above 10% of revenue by 2013, according to the report." Why does Moody's draw the line at 10%?
There's no bright line. But we have seen that with countries who get to that kind of level, they get into trouble ... the debt feeds on itself. The big reason is you have to pay significant interest and that gets worse if people get worried about your ability to pay higher rates, and that pushes interest rates up even higher.
3) Moody said it would only downgrade a triple-A government's debt if it "concluded that the government was unable and/or unwilling to quickly reverse the deterioration it has incurred." But wait. Has anything the US government has done in the last year convinced you that it is able an willing to quickly reverse its fiscal deterioration?
So far it's just talk. I believe the talk, but there's been little action.There's a great line from Winston Churchill, that America always does the right thing after trying everything else. We had a debt problem twenty years ago and we significantly decreased the budget deficit under Clinton. Eventually, we are going to be able to do what we have to do.
We want to hear what you think about this article. Submit a letter to the editor or write to email@example.com.