We are vulnerable to the effects of another set of downgrades. It doesn’t seem that unlikely, and our getting scared about it could be used as political leverage by both sides to dodge a default; yet I haven’t heard anyone talk about the threat of the major credit rating agencies issuing statements or implementing downgrades, rather just the shutdown and the debt ceiling and also whether Ted Cruz’s schpeel was technically a filibuster or a long, dumb, and highly unhelpful rant (it was the latter, though I shouldn’t get too political).
This happened in 2011 under similar circumstances with S&P lowering us from a AAA rating (outstanding) to an AA+ (excellent). Moody’s did the same, noting their similar concern to S&P’s over Congress possibly not raising the debt ceiling soon, and that the extreme political polarization between the two parties (plus the Tea Party movement’s contributions), in their eyes, made that possibility more likely. So our credit took a slap, to Obama’s chagrin. From S&P’s statement:
We have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon. The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge.
They were explaining why they were doing something that would and did hurt the country (but helped those potential creditors who take stock in such credit ratings, and possibly spooked us into getting our act together), and they were also describing the future 100% accurately. The present turbulent political climate strikes me as much more extreme with respect to these concerns than the circumstances from 2011 that precipitated the downgrades.
Were we warned now, as neither side would want to be blamed for it, perhaps we would wake up and recognize that historically these warnings are no joke, and, though there would be consequences (EG the global stock markets would take a hit and interest rates to finance our debt could increase, possibly along with all interest rates), it could aim us toward a less idiotic direction and narrowly avert what would be a catastrophe, an economic global calamity. And further polarization for history to keep repeating itself, more painfully each time.
PS: Yes this wasn’t very related to gadgets and I am not an economist, but it’s Sunday, I get to let my hair down here on Sundays.