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McConnell-Reid "Just Borrow More" Plan Fails to Cut Spending and Degrades America's Creditworthiness
Posted By David S. Addington On July 19, 2011 @ 11:36 am In Economics | Comments Disabled
Any Senator foolish enough to think the McConnell-Reid “Just Borrow More” Plan solves the debt ceiling problem should look again at what the Moody’s debt rating service said. The McConnell-Reid Plan simply hikes the debt ceiling so the government can borrow more money, with a commission thrown in, to meet in the future to recommend to Congress spending cuts that may or may not ever be enacted. The Moody’s rating service called for real action to drive down federal deficits, but the McConnell-Reid Plan provides none.
The Moody’s statement of July 13 placed the AAA bond rating of U.S. debt on review for possible downgrade. Moody’s focused on two concerns: (1) the Treasury could run out of money to pay its obligations if Congress does not timely enact a law authorizing the government to borrow more money, and (2) even if such a law is timely enacted, it might not include credible deficit reduction. Members of Congress and the press focused lots of attention on the first Moody’s concern — a Treasury temporarily unable to pay some of its bills — but failed to focus on the second concern — insufficient deficit reduction.
Moody’s said that, even if a law is enacted to raise the debt limit, “the outlook assigned at that time to the government bond rating would very likely be changed to negative at the conclusion of the review unless substantial and credible agreement is achieved on a budget that includes long-term deficit reduction.” The McConnell-Reid Plan gets nowhere near meeting the Moody’s test of “substantial and credible agreement . . . on a budget that includes long-term deficit reduction.” Its enactment would do nothing to reduce federal spending  and would substantially increase federal borrowing. The “Just Borrow More” Plan digs America deeper and deeper into the hole.
Since the McConnell-Reid “Just Borrow More” Plan flunks the Moody’s test, Moody’s can be expected to downgrade the U.S. AAA bond rating if the Plan becomes law. When Moody’s drops the rating, the markets will force the government to pay higher interest rates to borrow money. The McConnell-Reid Plan forces America to borrow more, and as a result forces America to pay more for that “privilege.”
From a political perspective, it is easy to understand why Senator Reid supports the Plan — after all, he is following the lead of the head of his Party, President Obama, whose Administration, when faced with the Cut, Cap and Balance spending cut legislation (H.R. 2560) that was a step in the right direction, said the President would veto it. But it is impossible to understand why Senator McConnell supports the “Just Borrow More” Plan. As one of the top two leaders of the Republican Party, surely he has some respect for his Party’s platform, which proclaimed that “Republicans will attack wasteful Washington spending immediately.”
Congress should not raise the debt limit without getting spending under control. Debt limit legislation should put America on the path to driving down federal spending and borrowing, while preserving our ability to protect America, and without raising taxes. Conservatives should stop the McConnell-Reid Plan. Don’t “just borrow more.”
Article printed from The Foundry: Conservative Policy News Blog from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2011/07/19/mcconnell-reid-just-borrow-more-plan-fails-to-cut-spending-and-degrades-americas-creditworthiness/
URLs in this post:
 federal spending: http://heritage.org/Issues/Budget-and-Spending/Deficits/Interest
 Shame on the Politically Motivated McConnell Plan to Hike Borrowing With No Spending Cuts: http://blog.heritage.org/2011/07/15/shame-on-the-politically-motivated-mcconnell-plan-to-hike-borrowing-with-no-spending-cuts/
 What Moody’s Really Told Boehner and Obama about the Debt Ceiling: http://blog.heritage.org/2011/07/15/what-moodys-really-told-boehner-and-obama-about-the-debt-ceiling/
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