America Down the Hill?

The U.S. is threatened by a development not much different than what happened to Greece, Portugal and Ireland. Rating agencies are already considering a downgrade of the credit rating of the most powerful economy in the world. Is the impossible possible?

Moody’s is now taking into account a possible downgrade of the U.S.’ credit rating, while Standard & Poor’s gave a clear signal in April that it is time to go in that direction. Moody’s evaluation of American government bonds has always been the highest possible — AAA. However, serious concerns regarding Washington’s ability to meet its obligations have urged Moody’s and other renowned agencies of that nature to seriously ponder their next move.

The Clock Is Ticking

If Congress doesn’t vote on raising the debt ceiling and make it law, the U.S. would be forced to default on its Treasury debt. According to Moody’s, if the U.S. does so even for one single day, giving it the highest rating — AAA — would be more than unacceptable. In 1917, the U.S. Congress established a limit or “ceiling” of the total amount of debt allowed to the government. Before that act, Congress used to approve every single debt issuance separately, since according to the Constitution it holds the sole power to borrow money.

Right now the ceiling is fixed at $14.3 trillion (roughly €10 trillion). This limit will be reached at the beginning of August; that will prompt the U.S. to discontinue their payments and even to interrupt the workings of the government and the administration.

A Billion-Dollar Explosion

A potential default on the obligations would set off an explosive outburst of the financial markets, the consequences of which could best be described as unpredictable. There is still a little bit of time to avoid the disaster if Congress raises the debt ceiling. Statistics show that since March 1962, the debt ceiling has been raised 74 times. In recent years the U.S. debt has grown from $5.95 trillion in 2001 to the current $14.29 trillion. There’ve been weeks since President Obama did not cross off even one day without having congressmen and senators from both parties in the White House. Numerous meetings and talks, though, haven’t led to a breakthrough so far. It looks like the negotiations actually have a negative effect. Reportedly, last week the president rushed out of a meeting with Republican congressmen all red and flushed with anger. “I can’t take it anymore!” said a subdued president, according to an unofficial Republican account.*

Editor’s Note: This quote, accurately translated, could not be verified.