FT: U.S. credit rating downgrade
None of the serious major party candidates is talking about the looming entitlement crisis. Controller General David Walker is doing a yeoman’s job spreading the word, but his sober, graphical, 20 minute presentations are too dry and long to reach folks who no longer seem able to process thoughts longer than a couple sound-bites.
Walker is up against a larger, more malicious force in American life today. The general level of selfishness that tends to define people who’ve never had to sacrifice anything for the greater good. Many who KNOW medicare and social security will bankrupt the economy are hesitant to speak out about necessary changes because it means they’ll have to sacrifice benefits they themselves feel entitled to. And to a certain degree they have a point. Boomers have been paying social security and medicare taxes for decades. And just when they’re about to reap the benefits, America tells them we can’t afford it. This is the great sacrifice the boomers are called on to make today. To give back benefits they’ve PAID FOR.
That said, show people the numbers, the fact that the UNITED STATES WILL GO BANKRUPT in 20 years and they refuse to push their representatives to fix the problem. In fact, they feel entitled to more, like “universal” health care. Reminds me of pork barrel spending. Everyone’s against it, unless the money is coming home to your district. So in reality, no one’s against it.
I’m on this subject because Moody’s commented yesterday that, if our entitlement obligations are not reduced, our sovereign credit rating will be at stake within 10 years:
The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody’s, the credit rating agency, said yesterday.
The warning over the future of the triple-A rating – granted to US government debt since it was first assessed in 1917 – reflects growing concerns over the country’s ability to retain its financial and economic supremacy….
In its annual report on the US, Moody’s signalled increased concern that rapid rises in Medicare and Medicaid – the government-funded healthcare programmes for the old and the poor – would “cause major fiscal pressures” in years to come.
Unlike Moody’s previous assessment of US government debt in 2005, yesterday’s report specifically links rises in healthcare and social security spending to the credit rating.
“The combination of the medical programmes and social security is the most important threat to the triple-A rating over the long term,” it said.
Steven Hess, Moody’s lead analyst for the US, told the Financial Times that in order to protect the country’s top rating, future administrations would have to rein in healthcare and social security costs.
“If no policy changes are made, in 10 years from now we would have to look very seriously at whether the US is still a triple-A credit,” he said.
Mr Hess said any downgrade in the US rating would have serious consequences for the global economy. “The US rating is the anchor of the world’s financial system. If you have a downgrade, you have a problem,” he said…..
Last year, David Walker, comptroller general of the US, caused controversy when he compared America’s current situation with the dying days of the Roman empire and warned the country was on “a burning platform” of unsustainable policies…..
Most presidential candidates have vowed to reform the healthcare system but many of them, especially on the Democratic side, have focused on extending coverage to the 40m-plus uninsured Americans rather than on cutting costs.
Downgrading U.S. debt would shake the very foundations of the global economy. The U.S. dollar is the anchor of the global financial system and downgrading our debt is tantamount to downgrading our currency. Comparing our situation to the waning days of the Roman Empire seems apt. We’ve overextended ourselves and our empire. We can no longer afford to sustain it. If we do nothing to strengthen its foundations, it will implode.
What would a credit downgrade mean for average Americans? Well for starters, the dollar would lose significantly against other foreign currencies, meaning holders of those currencies would be able to outbid us for the world’s resources. What would life be like with $200 oil? It would require major changes in the way our economy is structured for starters. Hard changes, hard sacrifices. What would life be like when interest rates on our debt jump higher and the government can’t afford deficits? It will mean major cuts in the entitlements we believe we’re promised. It will mean drastic cuts in defense spending, perhaps making us more vulnerable to attack from newly empowered economies like China.
There is time to fix the entitlement problem. But we must start today. We need presidential candidates to speak out on this and we need the American people to listen.