Although additional evidence regarding the severity of America’s debt crisis should not be necessary, Standard & Poors provided some more, lowering its future outlook for United States creditworthiness from “stable” to “negative.” That move effectively amounts to a warning that the nation needs to put its fiscal house in order or face disastrous consequences.
Standard & Poors did not downgrade the United States’ actual credit rating, which remains at AAA/A-1+, Standard & Poors’ highest possible score. Instead, the agency is putting the nation on notice that if we don’t do something to start paying down our massive debt, our national credit rating could be downgraded in the future. The United States has never had a credit rating below AAA with Standard & Poors, and of the 127 nations that the agency rates, only nineteen have AAA ratings.
Losing that AAA rating would be a disaster for the country, meaning that the United States government would have to offer higher interest rates when selling its debt, which would in turn lead to even more government spending. In issuing its warning, Standard & Poors noted how the federal government’s debt varied between two and five per cent of GDP from 2003 through 2008. That, the agency said, is a higher percentage than it usually allows in the case of other nations that carry the treasured top rating.
In 2009, the first year of the Obama administration, the nation’s debt load exploded to eleven per cent of GDP and has yet to come down, prompting the Standard & Poors outlook warning. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012,” said S&P credit analyst Nikola Swann.
The magnitude of our national debt, now in excess of $14 trillion, and our commitment to paying out entitlement programs is hard to fathom. According to economist Bruce Bartlett, meeting all of our unfunded Social Security and Medicare commitments would require an immediate eighty one per cent increase in federal income taxes, which would have to remain in effect forever. The gap between revenues to meet entitlement commitments and the commitments themselves stands at approximately $100 trillion today and the longer we do nothing, the bigger that chasm becomes.
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