America’s triple-A credit rating will be up for review “at some point” unless more is done to cut the stunning budget deficit, says Moody’s (link requires registration).
Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the Aaa government bond rating.
Barack Obama definitely did not do enough in the budget, acting as what Paul Krugman calls a “deficit peacock” with the half-hearted non-security spending freeze.
But the true deficit hawks are gearing up for a fight at the November mid-term elections, and Moody’s comments can only help them in a week which already features the Tea Party convention in Nashville. Sarah Palin, the keynote speaker, has drunk whatever they put in their tea, and she’s convinced:
Recently, some have tried to portray this movement as a commercial endeavor rather than the grassroots uprising that it is. Those who do so don’t understand the frustration everyday Americans feel when they see their government mortgaging their children’s future with reckless spending. The spark of patriotic indignation that inspired those who fought for our independence and those who marched peacefully for civil rights has ignited once again. You can’t buy such a sentiment. You can’t AstroTurf it. It springs from love of country and the knowledge that we can make a difference if we just stand up and stand together.
John Spratt, the House budget committee chairman and another deficit hawk has already called for more, even as he supported Obama’s budget:
A three-year freeze on non-security discretionary spending and a bipartisan fiscal commission are concrete commitments on the President’s part to bringing down the deficit, even if additional steps will be needed.
But there is no sign of serious progress. Consider the European parallel: the US is currently taking an approach closest to the UK, dithering about reducing the deficit, setting up a bipartisan (good luck with that) committee to discuss further action and doing little to spell out long-term plans. Ireland, meanwhile, has cut public pay, increased the pension age, slashed benefits and, as a result, won back a large degree of confidence in its economy (if not the confidence of public workers). Like Britain, the US is not even close to a Greek-style crisis, but, like Britain, the US has no plan to deal with the problem – and, like Britain, this year’s budget deficit is actually bigger than Greece’s as a proportion of GDP.
Only two approaches seem to be on the cards in either the US or UK: keep dithering, until the markets (egged on by the ratings agencies) force sudden cuts, or give in to the fiscal hawks and cut now, raising the spectre of a repeat of the 1937 double-dip (Krugman thinks another crisis is going to happen anyway as existing spending programmes wind-down, but even the IMF doesn’t think immediate cuts make much sense). As Simon Nixon points out, markets are sending contradictory signals in different countries: action needed in some, but not others. The UK and US cannot continue to be given the benefit of the doubt by investors for ever.
Sensible measures, clearly set out so they convince the markets that deficits will come down in future, need to be laid out: but the dates for implementation delayed. Sadly, the political system does not seem capable of planning beyond the next 24-hour news cycle.
Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.
Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.
Moody’s adds to a political deficit
America’s triple-A credit rating will be up for review “at some point” unless more is done to cut the stunning budget deficit, says Moody’s (link requires registration).
Barack Obama definitely did not do enough in the budget, acting as what Paul Krugman calls a “deficit peacock” with the half-hearted non-security spending freeze.
But the true deficit hawks are gearing up for a fight at the November mid-term elections, and Moody’s comments can only help them in a week which already features the Tea Party convention in Nashville. Sarah Palin, the keynote speaker, has drunk whatever they put in their tea, and she’s convinced:
John Spratt, the House budget committee chairman and another deficit hawk has already called for more, even as he supported Obama’s budget:
But there is no sign of serious progress. Consider the European parallel: the US is currently taking an approach closest to the UK, dithering about reducing the deficit, setting up a bipartisan (good luck with that) committee to discuss further action and doing little to spell out long-term plans. Ireland, meanwhile, has cut public pay, increased the pension age, slashed benefits and, as a result, won back a large degree of confidence in its economy (if not the confidence of public workers). Like Britain, the US is not even close to a Greek-style crisis, but, like Britain, the US has no plan to deal with the problem – and, like Britain, this year’s budget deficit is actually bigger than Greece’s as a proportion of GDP.
Only two approaches seem to be on the cards in either the US or UK: keep dithering, until the markets (egged on by the ratings agencies) force sudden cuts, or give in to the fiscal hawks and cut now, raising the spectre of a repeat of the 1937 double-dip (Krugman thinks another crisis is going to happen anyway as existing spending programmes wind-down, but even the IMF doesn’t think immediate cuts make much sense). As Simon Nixon points out, markets are sending contradictory signals in different countries: action needed in some, but not others. The UK and US cannot continue to be given the benefit of the doubt by investors for ever.
Sensible measures, clearly set out so they convince the markets that deficits will come down in future, need to be laid out: but the dates for implementation delayed. Sadly, the political system does not seem capable of planning beyond the next 24-hour news cycle.