A AAA excuse for Obama tax hikes?
Brian Wesbury and Bob Stein of First Trust Advisors raise an interesting conjecture (bold is mine):
Back during the budget showdown of 1995, when President Clinton faced off against the new Republican Congress, then-Treasury Secretary Robert Rubin repeatedly warned that the rating agencies could put the US on review for failing to increase the debt limit. The political angle was that a review would jack up interest rates, leading the Republicans to capitulate on trying to reduce government spending. The markets, however, scoffed at Rubin, and interest rates fell during the budget “crisis.”
This time around, we wonder whether in the next couple of years President Obama will declare a fiscal emergency that only a tax hike can solve, using the threat of a rating downgrade as a way to put political pressure on his opponents. If so, we need only look at the UK, where the threat of a downgrade comes despite large tax increases already built into their budget.