S&P Issued a Pessimistic Outlook for the Value of U.S. Debt
We Have Been Warned
S&P Today: “if an agreement is not reached and meaningful implementation is not begun by then (2013), this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”
Dear Friends:
S&P just announced a negative outlook for the future of U.S. debt – a warning that if we do not stop spending, a crisis could come.
The rate of U.S. spending and debt is unsustainable -- our economy is on a dangerous course. We are borrowing $4 billion a day and will pay our creditors over $200 billion just in interest payments this year.
In times of crisis, we face a choice: 1) raise taxes and provide government bailouts, or 2) cut spending and enact pro-growth policies. I strongly support cutting spending.
The Case of Ireland
If we do not change course, we face the fate of many European debtors. Take the case of Ireland. During the economic downturn, Ireland guaranteed the debts of its banks – essentially a bailout. Ireland increased spending and borrowing while its tax revenues shrunk. In response, Moody’s cut Ireland’s debt rating.
The price of Ireland’s bad government was paid by the people of Ireland. In August 2010, Ireland issued 40% fewer mortgages than before. Residential and commercial lending fell so fast that Ireland’s state-run National Asset Management Agency stepped in to find a way lend something to someone.
Lenders charged the Irish taxpayer more and more for the privilege of spending other people’s money.
The Case of Canada
Compare this to Canada. When faced with the same dilemma, Canada cut spending during its 1990s economic crisis. After Moody’s downgraded Canada’s foreign debt rating in 1994, the Canadian government cut 20% of federal spending. Because Canadian leaders waited until after their debt situation reached a crisis, they had to eliminate 40,000 public sector jobs.
Canada’s tough choices lowered borrowing costs and strengthened the country as the government sought pro-growth solutions. In fact, Canada came out of the recent financial crisis healthier than most other countries – lenders charged less and less, with new confidence that Canada had its act together.
The Case of the United States
We now face similar choices. To protect you and your income, I think we should follow Canada’s fiscally responsible path and avoid the drop in incomes suffered by the Irish people. If the government makes hard choices now, you will be protected from hard choices later.
In Ireland, the government said ‘yes’ to everyone and ‘no’ to its economic future. In Canada, the government learned that restraint and responsibility led to a very bright future.
With today’s report from S&P, we Americans have been warned.
Thank you for your continued interest in these important issues. As always, please feel free to contact me at(312) 886-3506 or online at kirk.senate.gov if you have any questions or comments, or should issues of concern to you come before the Congress.
It is an honor to serve you in the U.S. Senate.
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