The USA enjoys a triple A credit rating since 1917. But irresponsible and imprudent management and policies have put the US A's credit rating under threat. Recently, Moody's has issued a warning that the USA is risking losing their top credit rating if it does not start to sort out its financial affairs, over which there are plenty concerns at the moment.
David Walker, chief executive for the Peter G Peterson foundation, wrote the following article appearing in the Financial Times:
That warning from Moody's focused on the exploding health care and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding.
Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. Another warning sign has come from the Chinese premier and the head of the People's Bank of China who expressed concern about America’s longer-term credit worthiness and the value of the dollar.
The US, despite the downturn, has the resources, expertise and resilience to restore its economy and meet its obligations. Moreover, many of the trillions of dollars recently funnelled into the financial system will hopefully rescue it and stimulate our economy.
First, while comprehensive health care reform is needed, it must not further harm our nation’s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future.
Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.
For too long, the US has delayed making the tough but necessary choices needed to reverse its deteriorating financial condition. One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate. The credit rating agencies have been wildly wrong before, not least with mortgage-backed securities.
How can one justify bestowing a triple A rating on an entity with an accumulated negative net worth of more than $11,000bn and additional off-balance sheet obligations of $45,000bn? An entity that is set to run a $1,800bn-plus deficit for the current year and trillion dollar-plus deficits for years to come?
Fiscal irresponsibility comes in two primary forms – acts of commission and of omission. Both are in danger of undermining our future.
First, Washington is about to embark on another major health care reform debate, this time over the need for comprehensive health care reform. The debate is driven, in large part, by the recognition that health care costs are the single largest contributor to our nation’s fiscal imbalance. It also recognises that the US is the only large industrialised nation without some level of guaranteed health coverage.
Recent research conducted for the Peterson Foundation shows that 90 per cent of Americans want the federal government to put its own financial house in order. It also shows that the public supports the creation of a fiscal commission by a two-to-one margin. Yet Washington still sleeps, and it is clear that we cannot count on politicians to make tough transformational changes on multiple fronts using the regular legislative process. We have to act before we face a much larger economic crisis. Let’s not wait until a credit rating downgrade. The time for Washington to wake up is now.
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