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Obama Pushes U.S. Credit Rating Below France

Posted By J.D. Foster, Ph.D. On February 3, 2010 @ 4:54 pm In Economics | Comments Disabled

On Tuesday, February 2, President Obama released his budget forecasting a deficit for 2010 of $1.6 trillion for the year and $9.1 trillion from 2010 through 2020. The next day the Moody’s credit rating agency announced [1]Obama’s budget policies were so profligate and irresponsible as to risk the credit rating of the federal government. The United State has long been recognized as the best credit risk in the world, with a rating of Aaa on Moody’s scale. Obama’s fiscal policies may “test the Aaa boundaries” according to Moody’s, as it shaded the U.S. government ratings now below those of Canada, Germany, and even France.

The source of massive budgetary shortfall is not a shortage of revenues. Obama projects federal receipts will once again be above their modern average of about 18.4 percent by 2013, rising to almost 20 percent by 2020. Near- and medium-term deficits arise because Obama saw Washington’s excess spending in recent years and decided to double down. Under his budget, federal spending rises by $1.7 trillion over 10 years.

Worse, these medium-run deficits but segue to America’s long-standing, long-run fiscal disaster known as Social Security, Medicare, and Medicaid. With promised benefits exceeding the programs’ dedicated revenues by many tens of trillions of dollars the President has boldly called for the creation of yet another toothless, partisan budget commission. As Senator Dorgan (D-ND), Chairman of the Budget Committee so aptly expressed at a committee hearing on the Budget, when it comes to controlling long-term costs, “I don’t see the focus. I don’t see the pivot”. [2]Dorgan announced his retirement from the Senate the same day Moody’s issue its warning.

The consequences of Obama’s profligacy will be felt some time in the future. For now, markets understand the United States has plenty of time to change course, and apparently assume it will do so. Hopefully, they are right. If and when markets come to believe the U.S. intends to continue to spend irresponsibly now and indefinitely, the reaction will be swift and painful in terms of much higher interest rates on U.S. government debt and throughout the economy. Debt is always a pay now or pay later proposition. If Obama impairs the U.S. government’s credit rating as his budget proposal threatens, paying later will get a lot more expensive.


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URL to article: http://blog.heritage.org/2010/02/03/obama-pushes-u-s-credit-rating-below-france/

URLs in this post:

[1] Moody’s credit rating agency announced : http://www.bloomberg.com/apps/news?pid=20601103&sid=av16pDNNrMig

[2] “I don’t see the focus. I don’t see the pivot”. : http://www.washingtontimes.com/news/2010/feb/03/obama-budget-critics-mobilize-to-restore-cuts/

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