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President's Ponderings: S&P Ratings and the Debt

By Edward Luttrell - President's Ponderings Blog (7/23/11)

  JULY 27, 2011 --

Yesterday the Standard and Poor’s Rating agency (S&P) warned again that the credit rating of the US could be downgraded unless we resolve the credit ceiling issue and start reducing the debt. I then heard the President hold a press conference and blame the other guys for not having a fair and balanced plan.

The reality of a downgrade of the US credit rating would probably not be good. While I’m not sure what may or may not happen, common sense says that one big impact would be that borrowing money would cost more. The lower your rating, the bigger the risk to the people loaning you money and the more interest they want to assume that risk. If the government pays more, so will we the people.

In 2010, net interest outlays totaled $197 billion due to lower interest rates. The scary thing is the Congressional Budget Office (CBO) projects (Dec, 2010) that, under current law, the combination of rising debt and rising interest rates will cause net interest payments to balloon to nearly $800 billion by 2020. If the current amount doesn’t worry you, nearing a trillion dollars in less than 10 years should. And when you consider that it seems the CBO always underestimates the cost of government over time, maybe we should be a little frightened?

Fair and balanced is a point of view. I remember a tax increase in the 1990’s where the President said we were only going to tax the rich. When my taxes went up that year, I realized that the President and I had a different view of what rich meant. While I thought I was rich in friends and family and yet had to struggle to pay my bills, the law increasing taxes on the rich caught me in the net as well. 

I keep thinking that the current debt situation is because of the spending our government has been doing. All my life I’ve heard people point out stupid things that the government spends money on. When you think about the attitude of “if we don’t spend it, we won’t get it next year” it does make sense how it happens. However if we can’t find ways to cut the federal budget, oh yeah, that is another problem since Congress has not passed one in a while. 

Political posturing is not the answer for the debt or economy. It only matters for elections and I'm not worried about elections next year when S&P ratings this year could harm our economy and future.

What I want is a growing economy so people can go back to work and pursue their version of the American dream. As I look around the world and back at history, I am having trouble finding a country, a company, or even a person who spent themselves into prosperity. The obvious first step to me is that our nation needs to reduce its debt. It seems only fair to me that we reduce spending first, and start now.

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