New York Stock Exchange

Stocks have fallen at the New York Stock Exchange as a result of S&P's downgrade of federal debt. Photo: Flickr/Gerardo Diego Ontiveros

Over the weekend, the United States lost its “best in class” AAA credit rating. Reacting to the inadequate debt reduction measures in last week’s debt deal, ratings agency Standard & Poor’s downgraded America’s debt to AA+.

What does this mean? The Heritage Foundation’s JD Foster explains:

A credit rating downgrade will eventually mean higher interest rates on U.S. government debt. This may be hard to imagine given the recent drop in Treasury bond rates in response to events overseas. But higher future rates are certain, and that means that even more federal tax dollars must be dedicated to paying the interest on past government excesses. Higher interest rates and interest cost means greater deficit pressures, which can mean more debt, which can lead to higher interest rates. This is why it is termed a debt spiral.

Foster explains how it came to this:

While not solely to blame, President Obama and his allies are most certainly preeminently to blame. Facing a rapidly growing budget deficit in 2009, President Obama pushed through a massive fiscal stimulus program followed by a succession of lesser efforts. As the anemic state of the economy attests quite clearly, those programs failed miserably—except in raising federal spending and national debt.

Then the President pushed through his disastrous and highly unpopular health care reform. On paper, these reforms give the appearance of improving the fiscal picture modestly. But as the Medicare trustees’ report has reminded us every year after Obamacare’s passage, this happy picture is an illusion. Aside from the damage it has done and will do to health care costs and services, from a fiscal perspective Obamacare ultimately is just yet another unaffordable entitlement piled on top of those already on the books.

There is hope for the future, but we must not delay. Given our present standing, the U.S. needs a fundamental change of course.

We must drive down spending—including and especially on entitlement programs—toward a balanced budget while protecting America and without raising taxes. Properly done, this would lead to economic growth, more jobs, less government, and a restoration of the nation’s credit rating. The Heritage Foundation’s Saving the American Dream plan would accomplish all these goals and more.

Comments (68)

Leave a Reply

Your email address will not be published. Required fields are marked *