The campaign is over. Now it’s back to reality. A very grim reality.
(CNSNews.com) – An economic analyst invited by the State Department to brief a group of foreign journalists on the U.S. economy on Election Day responded to a question from a reporter from the Egyptian newspaper Al Wafd by predicting that U.S. Treasury securities—the means by which the U.S. government finances its debt–will be downgraded again.
On Aug. 5, 2011, three days after President Obama signed legislation increasing the U.S. government debt limit by $2.4 trillion, Standard & Poors downgraded U.S. Treasury securities from its highest grade of AAA to AA+. Prior to that, U.S. government debt had always maintained the highest rating.
At Tuesday’s State Department event, the Egyptian reporter asked analyst Kathy Bostjancic, director of Macroeconomic Analysis for the nonpartisan Conference Board, what impact the so-called “fiscal cliff” facing the U.S. federal government would have on the rating of U.S. Treasury securities.
“I mean, to me, it seems the odds of us getting downgraded again are very high,” said Bostjanic.
“But I think that they [Republicans and Democrats] get around the sequestration,” Bostjanic went on to say, “and I think by consequence, because they’re not going to find an agreement on how to offset that in the budget, we’re going to get downgraded.”
Remember that President Obama said during the last presidential debate, rather bluntly, that the sequestration spending cuts weren’t going to happen. If that’s true we will almost certainly get another downgrade in our credit rating, which isn’t merely symbolism.
When our credit gets downgraded the cost of our borrowing goes up. Think of it like getting a loan or a credit card. The worse your credit rating the higher your interest rate. Every time our credit rating gets downgraded our government has to pay more to borrow.
In fiscal year 2012 alone the US spent over $359 billion on interest payments to service the national debt, an amount roughly half our defense budget and more than half of all discretionary spending combined.
A downgraded credit rating means accelerated interest costs. That’s more of our tax dollars spent on nothing other than servicing our gigantic debt pile. And with Obama’s re-election, there are no solutions on the horizon.