Friday, April 02, 2010

The Democrat debt bomb

The Democrat debt bomb

Philadelphia Inquirer Editorial:

Another warning about the federal government's precarious debt burden illustrates why Washington needs to balance its books soon.

The latest alarm comes from Moody's Investors Service, which rates the creditworthiness of governments worldwide. Moody's said the United States' mushrooming debt could threaten its "triple-A" credit rating.

The agency said the United States and other Western nations have moved "substantially" closer to losing their top ratings, a reflection of their ability to pay back loans.

To lose the status that the United States has enjoyed since 1949 was previously unthinkable.

And it's not just U.S. prestige at stake. A downgrade would harm the federal government's ability to borrow money cheaply.

Washington has been living on borrowed money, especially during the past decade. President Obama's proposed $3.83 trillion budget for the coming fiscal year would borrow 42 cents of every $1 spent. The federal deficit is expected to rise this year to 10.6 percent of gross domestic product, its highest level since 1946. And the fiscal future looks even dimmer.

Lower credit ratings result in higher interest rates. That means repaying the government's ever-rising debt would cost taxpayers more. And it would leave the government with less money to spend on everything from school books to border fences.


The higher rates will have a ripple effect throughout the economy. There are trillions of dollars of off balance sheet borrowing for agencies who have gotten lower rates because of an implied government guarantee. Their debt will also be discounted meaning higher rates for future borrowing and capital losses for holders of the debt. Democrats seem totally heedless of this looming problem. It is another reason to vote against them this fall.

No comments: