U.S. credit rating in jeopardy as default looms (with timeline)
On May 16, 2011, the United States government reached its self-imposed debt limit, first established in 1917 via the Second Liberty Bond Act. From the start of the Bush administration to the present, Congress voted to raise the debt ceiling 10 times. In 2008, President Bush signed the Housing and Economic Recovery Act, and the Emergency Economic Stabilization Act, which both included debt ceiling increases. With each debt ceiling increase, despite a few hands consistently voting in the negative solely on principle, Congress has always garnered enough support to avoid a financial calamity.
With a Democrat in the White House, however, the question of a financial meltdown has not deterred many Republicans from choosing the most destructive economic path. Luckily, poll after poll shows that the public overwhelmingly disapproves of how Republicans have handled this self-imposed dilemma. The reemergence of widespread support for raising the debt ceiling, in addition to eliminating tax loopholes and subsidies for the wealthy, gives President Obama yet another chance to capitalize politically, simply by following the wishes of the public.
According to a Quinnipiac poll on the economy, 48 percent of voters said they would blame Republicans if the debt ceiling is not raised, compared to just 34 percent who would blame President Obama. A CBS poll found an overwhelming 71 percent of Americans disapproved of Republican’s handling of the ongoing negotiations. With more Americans bearing witness to this unending travesty, another CBS poll found that support for increasing the debt ceiling has doubled over the past month.
Since May 16, the U.S. Department of Treasury has been employing four “extraordinary measures” to avert a default on legal obligations. The actions taken to allow Congress more time to do their job include the following:
- Suspension of issuance of State and Local Government Series (SLGS) Treasury securities
- Declaration of “Debt issuance suspension period” for the Civil Service Retirement and Disability Fund (CSRDF)
- Suspension of reinvestment of the Government Securities Investment Fund (G Fund)
- Suspension of reinvestment of the Exchange Stabilization Fund
Since at least June 2, Moody’s Investors Service has indicated the United States’ credit rating would likely be downgraded prior to the actual default, contingent upon there being significant progress in Congress. On July 14, Standard & Poor’s released another report indicating it had “placed its ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on the [U.S.] on CreditWatch with negative implications.”
At this point, there has seemingly been very little progress in Congress; instead, Republicans have insisted upon a string of symbolic votes that will undoubtedly fail. With just two weeks until August 2, the United States’ credit rating is being needlessly jeopardized, and National Default Day is rapidly approaching. This debate has exponentially decreased any positive sentiment felt toward the legislators in the U.S. Congress. As I stated in House Republicans already voted for a debt ceiling increase, members of Congress need to start showing a little bit of maturity.
Additional Reading: The Debt Limit: History and Recent Increases (Congressional Research Service)