According to the AP, “Credit ratings agency Standard & Poor’s said Thursday it is unlikely to lower its rating on the U.S. government in the near-term.”
The rating does not include the “long term” and that is the problem. US borrowing is still rising quickly and could move up by several hundred billion dollars more before the end of 2009. The deficit is expanding, mostly because of falling income tax and corporate payments. Companies are making less money and so are individual taxpayers.
The government’s borrowing habit is running up against two critical barriers. The first is rising unemployment. It saps funds from other programs because of the need for supporting out of work citizens. It also lowers the tax base and that process will accelerate as unemployment moves over 10%.
The other troubling issue is the effect that government borrowing has all on its own. The global capital markets will not lend the US sharply rising sums forever. At some point the soft US economy and questions about the interest payments on the burgeoning American obligation will be an inducement for investors to put money elsewhere. That process will almost certainly cause the Treasury to raise the interest it will pay on its paper, making debt service an even larger burden.
The S&P rating may be good, but only for awhile.
Douglas A. McIntyre
Contact [email protected] for any questions or corrections.
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