posted at 2:00 pm on July 25, 2011 by Tina Korbe
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Goldman Sachs suggests a downgrade of U.S. credit is increasingly likely and experts continue to warn that a weakened credit rating would have significant financial repercussions in the markets, but at least one member of Congress has accepted that a downgrade might be deserved.
“Until we stop spending more, we should be downgraded,” Rep. Darrell Issa (R-Calif.), chairman of the House Committee on Oversight and Government Reform, said this morning on the Fox Business Network.
The Hill reports more details:
The credit-rating agencies Moody’s Investors Service and Standard & Poor’s both put the nation’s triple-A credit rating on review for a downgrade this month. The agencies warned that the U.S. might lose its perfect rating if the government defaulted on its debt or failed to take steps to address the deficit.
“If America can, in fact, pay its bills, it’s AAA. If we can’t pay our bills, it doesn’t matter what rating they give us,” Issa said. “Right now we can pay our bills, but we’re heading toward the kind of spending and debt to where someday we wouldn’t be able to pay our bills, and that’s what’s gotta change.”
Like many Republicans, Issa also indicated he does not consider Aug. 2 the drop-dead deadline to raise the debt ceiling. “[Obama] signed funding through September months ago,” he said.
Debate continues about what effects a credit downgrade could have. Some Wall Street traders say discussion about the potentially devastating effects is “much ado about nothing,” and Reuters’ James Pethokoukis says the impact would not be “as frightening as I might have assumed.”
Pethokoukis makes the astute point that the bigger repercussions would probably be political and would hinge on whether President Barack Obama or Republicans were blamed for the downgrade. With Republicans making remarks like Issa’s, it’s hard to think how the American people could fail to see which side is serious about solving the problem. Republicans won’t be sidetracked from offering solutions by discussion of a downgrade or default. On the other hand, all Obama has really done is talk up the terror of a default, even as he proves time and time again — possibly even this past Sunday if reports are true that he turned down a bipartisan debt deal — that he cares more about his reelection effort than he does about the nation’s fiscal health.
That’s what Issa is really saying here — that all the wailing in the world won’t change the reality. A falsely pristine credit rating won’t spare the U.S. from reaping what it has sowed — too much spending — and a downgrade doesn’t mean the U.S. will lose its ability to repay its obligations overnight. It will just come as yet another stark reminder that Congress eventually must make the hard decisions politicians are oh-so-good at procrastinating.
