The “Economic Stimulus” bill, expected to be signed by President Obama today, will have yet another frightening long-term consequence. A report, issued by Moody’s Investors Service, said the increase in debt could have a negative impact on the country’s triple-A credit rating. An understatement to be sure.
Steven Hess, a sovereign credit analyst at Moody’s, disclosed the unsettling news: “By the end of a two year period, the U.S. debt ratios will be higher and moving the country’s metrics to the lower end of the pack… this triple rating isn’t assured forever.”
According to Moody’s the public debt as a percentage of the total economy (GDP) will jump 21.6%, up to 62.4% of GDP by 2010. To put this in perspective, the Congressional Budget Office’s extended baseline scenario didn’t have levels of debt hitting 60% of GDP until 2054.
Let’s remember, this money isn’t loaned to us for free. Just like personal credit cards, the government must pay interest on the debt. The loss of the triple-A rating would have the effect of hiking interest payments at a time when the country owes more than ever.
Sadly, the country’s fiscal condition wasn’t in great fiscal shape before the “stimulus.” The often over-looked interest payments already comprise the fourth greatest portion of the US budget, only trailing Social Security, Medicare, and Defense. Even without the “stimulus” the long term fiscal instability due to entitlement spending has raised concern. In January of 2008 Moody’s warned: “These two programs [Social Security and Medicare] are the largest threats to the long-term financial health of the United States and to the government’s AAA rating.”
President Obama promised fiscal discipline. Drastically driving up spending, and thus the national debt further endangers the country’s long term financial stability. This is not the change we were looking for.