The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.
This is the point where all the harping about fiscal restraint should finally get traction. The United States government has objectively damaged its fiscal position, and it's beginning to show:
Under the ratings company’s baseline scenario the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.
“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”
The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates, Moody’s said.
Fortunately, House Republicans have begun to act in accordance with the news. They decided they will not seek any earmarks for pet spending projects this year, which is an admirable thing - and I can barely imagine that the coalition will hold.
Here in New Orleans, Representative Joseph Cao, in contrast, refused to join his colleagues from the outset. Forsaking pork would be "shortsighted" in his view. I continue to wonder how Cao's tightrope walk between his official party label and his distinctive district will turn out.