Moral Outrage
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Standard & Poor’s to downgrade United States?

Federal Reserve Chairman Ben Bernanke said the fallout from a failure to raise the US debt ceiling could be “catastrophic” and “self defeating.” On an annualized basis, it’s the rough equivalent of cutting spending by $1.6 trillion — which is nearly all of so-called discretionary spending, including defense.

The United States doesn’t bring in enough revenue to pay all its bills — with monthly deficits averaging $125 billion. And Treasury won’t be allowed to borrow new money to make up for the gap between revenue and spending.

To date, the United States has enjoyed its AAA rating in part for having always stood behind its debt and paid its bills on time. If the U.S. were to lose its AAA credit rating, foreign investors, who hold about half of all U.S. Treasuries, might demand higher interest rates in exchange for holding the debt.

And other major holders of U.S. debt, like pension funds, states and insurance companies, would be put in the awkward position of having to decide whether to take their money to other safe-haven investments.

For at least two of the rating agencies — Moody’s and S&P — raising the debt ceiling is not enough. They also want to see lawmakers agree to substantial debt reduction. Standard & Poor’s has already said there is a one-in-two chance it would downgrade the United States within 90 days.

[CNN]

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2 Responses to “Standard & Poor’s to downgrade United States?”

  1. Computer Minister…

    Standard & Poor’s to downgrade United States? « Moral Outrage…


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