The Dow dropped 100 points this morning after Republicans and Democrats spent another weekend failing to reach an agreement to raise the debt ceiling.
Standard & Poor's director of sovereign bond ratings told me Friday that a debt ceiling lift is not enough for the credit rating agency. Without a deal to find trillions of dollars in savings in the next 90 days, the U.S. stands a 50-50 chance of a historic downgrade, the agency said last week. Congress can't agree on a final deal, but they agree on a starting principle. We have to cut trillions of dollars in spending over the next decade in conjunction with raising the debt ceiling.
Here's my question: How certain are you that the economy be better off if we (a) accepted hundreds of billions in cuts to avoid a downgrade versus if we (b) accepted the possibility of a downgrade and refused to accept specific spending cuts this year or next?
This isn't a rhetorical question. I find it extremely difficult to answer conclusively. One trillion dollars in cuts beginning this fiscal year would almost certainly result in more layoffs at every level of government, less government spending on contracters, military hospitals, and other firms, and less support for unemployment. But it would also help us preserve our sterling AAA-rating, which would keep borrowing rates low for government, businesses, and families.