The greatest threat to America's exceptional credit ratings is the ever-present possibility that we'll breach the national debt ceiling and default on our debt payments, but there's another threat.
The other, potentially greater threat is the non-existent fiscal discipline of Republicans who've set us on a path to incredible deficits and debt in the very near future.
Moody’s Investors Service is now warning that our credit rating will face "downward pressure" in the near future because there's virtually no expectation that our situation will improve.
The U.S., which is rated Aaa with a stable outlook, faces “downward pressure in the long-term, due to meaningful fiscal deterioration,” Moody’s analysts Sarah Carlson and Yves Lemay wrote Friday in a report. “Rising entitlement costs and rising interest rates will cause the U.S.’s fiscal position to further erode over the next decade, absent measures to reduce those costs or to raise additional revenues.”
The report comes as President Donald Trump signed a two-year budget agreement that will boost federal spending by almost $300 billion. The nonpartisan Committee for a Responsible Federal Budget said the deal would add a net $320 billion to deficits over a decade, or $418 billion when factoring in additional interest costs. That’s on top of an estimated $1 trillion added to the deficit over 10 years by the Republican tax-cut legislation passed in December.
No one wants to talk about it right now, but the only way we'll be able to pull back from the brink is by dramatically raising taxes.
Even if Democrats retake control of Congress, and even if a Democratic candidate is able to defeat Trump in 2020, it will still be very difficult to claw back the revenue Republicans chose to ship out the door while they had total control. And there's no guarantee Democrats will be victorious. There's no guarantee Democrats will even have a chance to raise taxes. Even assuming they do win the next two elections, it will be incredibly difficult to assemble a majority in Congress that is willing and capable of raising corporate taxes and taxes on the rich by the amount that is necessary.
If Democrats do not win the upcoming elections, Republicans will undoubtedly try to solve our problems by cutting healthcare and social assistance programs, but even that won't be enough. They could eliminate every social welfare program from food stamps to Pell grants and it still wouldn't cover the cost of their tax cuts.
All things considered, it's easy to understand why Moody's is not optimistic about our fiscal future.
The federal deficit increased dramatically under George W. Bush and during the early years of the Obama administration when we were still digging out of the recession, but Republicans in 2018 will explode the deficit much quicker than any president has since at least World War II.
The era of $1 trillion deficits is behind us and the era of $2 trillion deficits is in front of us.
Sleep tight.