Published on -9/13/2012, 9:37 AM
When Congress couldn't find a compromise on the budget and reducing annual deficits last year, the Standard & Poor's ratings agency downgraded the country's credit rating. This week, Moody's Investors Service is promising to do the same if the standoff continues and no deal is reached by the end of the year. Fitch Ratings likely would follow suit.
Such actions could have a dramatic effect on U.S. borrowing costs. With the national debt in excess of $16 trillion, interest payments alone cost hundreds of billions of dollars annually. Even tenths of a percentage point difference in interest rates result in significant sums being added to taxpayers' burden.
Thus far, U.S. rates have not been raised. This might have more to do with the economic turmoil taking place in Europe than continued global trust that U.S. debt is a good buy. Bond investors are getting great returns from the instruments they're purchasing from Greece, Spain and Italy -- although U.S. bonds still are considered safe.
America shouldn't need to worry about such matters. And traditionally, ratings services wouldn't be worried about the extraordinary U.S. economy's ability to continue expanding or the government paying its bills. They still aren't. What worries them is the inability of Congress to accomplish even basic tasks. Moody's report this week said "it is difficult to predict when Congress will reach a deal on the budget."
Talks with congressional leaders do nothing to lessen that concern. Lawmakers know they need to reduce deficit spending by at least $1.2 trillion over the next 10 years or by their own rules will watch automatic spending cuts get enacted on Jan. 2, the Bush era tax cuts disappear, and push the country back into recession. And, presumably, the credit rating also will slip and tack more costs onto the existing bill.
House Speaker John Boehner said he isn't confident Congress can prevent the government from hitting the so-called fiscal cliff. Senate Majority Leader Harry Reid said he's hopeful. Neither party leads us to believe a compromise will be reached.
What we do expect Congress to do between now and the November election -- for the few days they've actually scheduled themselves to work -- is not much beyond temporary spending bills to keep the government open and extensions of current legislation. The rest will be symbolic nonsense and political positioning.
If there is one thing uniting our elected leaders it is their steadfast belief it's the other party's fault. But when nothing is being accomplished, it's everybody's fault. The Kansas delegation is not exempt from that group.
Editorial by Patrick Lowry