A U.S. credit downgrade: Inevitable?
After months of squabbling and dysfunction in Washington, D.C., a majority of economists think the U.S. will lose its sterling AAA credit rating from at least one of the big ratings agencies — Standard & Poor's, Moody's, or Fitch — even if Democrats and Republicans strike a last-minute deal on raising the debt ceiling. Lawmakers have less than a week left to push the borrowing limit above $14.3 trillion before the government runs short of money to pay all of its bills. Is there any way to avoid a downgrade now?
Yes. But Congress must stop playing politics: A credible deficit-reduction plan will prevent a downgrade, says Daniel Indiviglio at The Atlantic. But such a plan would have to do three things: Raise the debt ceiling, reduce the deficit, and minimize the risk of another politicized showdown like this one. "If a deal doesn't prevent downgrade, then it's a waste of time." Unfortunately, the Republican plans are short term — all but guaranteeing another damaging showdown like this next year.
"Why Boehner's debt plan might not prevent downgrade"
Maybe. But a downgrade wouldn't be so bad: The gambling website Intrade has seen the probability of a downgrade by the end of the year surge from 40 percent to more than 60 percent, says R.A. at The Economist. Of course, nobody wants the U.S. government to be saddled with the extra $100 billion a year in borrowing costs that a downgrade entails. But don't panic. "A downgrade might be messy," but "it's not the kind of thing that's likely to tank the economy."
"Maybe a downgrade doesn't matter"
Sorry. A damaging downgrade is inevitable: There are only three possible outcomes, and all lead to a downgrade, says Conn Carroll at the Washington Examiner. Congress could pass Senate Majority Leader Harry Reid's Democratic plan, but that doesn't cut enough from the deficit to save our AAA rating. Neither does House Speaker John Boehner's GOP plan, and it merely kicks the showdown into next year, instead of offering a long-term solution. And a downgrade is also certain if there's no deal. "The only question is who will get the blame."
"Morning Examiner: Downgrade blame game"