Archive | January, 2011

How Will Congress Answer the $283 Million Question?

Posted on 21 January 2011

The New Year kicked off with a worrisome bang for United States policymakers: On Thursday, January 13th, two major credit-rating agencies—Moody’s and Standard & Poor’s—warned that the United States’ stellar AAA credit rating is at risk if we fail to get our $14 trillion national debt under control.

Credit ratings can seem abstract and complex. To put it simply, the loss of our AAA rating signals to investors that we’re less able to pay back our debts—which holds serious personal consequences for every one of us.

Consider the country of Spain, which saw its own AAA credit rating downgraded in the fall of 2010. Foreign borrowers, worried about Spain’s ability to pay back its debts, demanded higher interest payments to compensate for the greater risk of lending the country money.

How much could just a one percentage point rise in interest payments cost the US? The Congressional Budget Office estimates that, over the next ten years, that yearly one percentage point rise would cost us an additional $1.033 trillion in interest payments, on top of the $5.079 trillion we’re already paying.

That’s an additional $283 million, every day, for the next ten years.

That’s bad news for taxpayers counting on lower taxes, but it could also mean bad news for anyone who owns a home—higher interest rates on our debt could mean larger payments on your home mortgage.

We’ve been warned before, most recently in July of 2010, when a top Moody’s analyst worried that “the U.S. appears to have ‘no plan’ to deal with its fiscal situation.” In the months since, the “plan” put forth by the President’s fiscal commission failed to get the votes needed to send it before Congress for consideration—hardly reassuring for credit analysts already wringing their hands about the country’s spending habits.

In short, this recent warning means it’s time for Congress to get cracking on the hard but necessary work of cutting spending (because, after all, we can’t just tax our way out of this one).