Wednesday, Moody’s Investors put the U.S. under review for a credit rating downgrade:
“The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured.”
Then yesterday, S & P 500 announced there was a 50 percent chance of a downgrade in our credit ratings:
“S&P said it was losing confidence that U.S. officials would raise the debt ceiling and also produce a plan to rein in the federal debt over the coming years. The agency said a failure to raise the debt ceiling would force the government to withhold payments to bond investors or sharply cut government spending, which could cripple the economy.”
Federal Reserve Chairman warned of a financial calamity:
“Obama administration officials say that, after that date, they would be forced to choose between paying for government services and servicing foreign debt. Federal Reserve Chairman Ben Bernanke visited Capitol Hill on Thursday to underline how bad this would be: If investors lost trust in Treasury bonds, it could ‘throw the financial system potentially into chaos.’”
And Treasury Secretary Geithner said we don’t have much time to take action:
“‘We’ve looked at all available options and we have no way to give Congress more time to solve this problem. We’re running out of time,’ Geithner said at a news conference after meeting with Senate Democrats.”
But despite the warnings from credit rating agencies, economists, business leaders, and even Speaker Boehner, several House Republicans refuse to believe that failure to ensure America pays its bills would have catastrophic consequences on our economy.
The president, the speaker of the House, the chairman of the Federal Reserve and Moody’s credit-rating agency all say that a failure to raise the U.S. debt ceiling by Aug. 2 would be an economic catastrophe and must be avoided.
Rep. Eric A. “Rick” Crawford (R-Ark.) thinks they’ve got it wrong.
Crawford, a freshman legislator, said that the president could cope with a full stop on U.S. borrowing by using incoming tax revenue to pay for the services he thinks are essential — soldiers, Medicare and Social Security, and interest on existing debt.
That approach, outside experts have said, might mean the government wouldn’t be able to afford the FBI, veterans’ benefits or other federal services.
That’s all right with Crawford.
“That wouldn’t work for just a few days. That would work for a few years,” said Crawford, who added that he would agree to raising the debt limit only if such a bill included major changes in federal budget priorities. Budget deficits, he said, require “that we take some painful measures now. I’d rather swallow that bitter pill today.”
As the Aug. 2 deadline looms, the debate over how to resolve the debt-ceiling crisis is being complicated by legislators such as Crawford who think the crisis is not as bad as it’s made out to be.
On Thursday, several House Republicans said they didn’t believe predictions that economic calamity would result from a missed deadline. That opinion — held despite a stream of warnings from both parties’ leaders — could make it difficult for the House to pass a debt-ceiling deal.
Rep. Mo Brooks (R-Ala.), another freshman, said that a much bigger fear was that raising the debt ceiling would enable Washington to spend itself into paralyzing debt in a few years.
“A debt-ceiling problem, as large as it is, is not anywhere near as a big or as bad as” that, Brooks said. If Aug. 2 arrives without a deal, Brooks said, the federal government could continue paying creditors. He said that a show of tough fiscal self-discipline could actually improve creditors’ confidence.
“There should be no default on August 2,” Brooks said. “In fact, our credit rating should be improved by not raising the debt ceiling.”
That stands in contrast to a warning from Moody’s. The rating agency said Wednesday that it might downgrade the U.S. government’s top-notch credit rating, “given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default.”
These views also contrast with the worries of others in the Republican caucus. They have said that the GOP should use the deadline to press President Obama for the best deal possible.
But there should still be a deal.
“Missing August 2nd could spook the market,” House Speaker John A. Boehner (R-Ohio) said Tuesday. “And you could have a real catastrophe. Nobody wants that to happen.”