Moody's: We're reviewing the U.S.'s Triple-A rating in light of default risk

A shot across the bow.

Moody’s Investors Service said late Wednesday it placed the U.S. government’s triple-A bond rating on review for possible downgrade due to rising risk of default. “The review of the U.S. government’s bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default,” Moody’s said. The rating agency stressed that it considers the probability of a default to be low but no longer minimal.

Advertisement

That’s from MarketWatch. Ironically, one of their own contributors argued yesterday that default is impossible because Treasury takes in much more revenue per month than it pays out in interest on debt. If Geithner had to, he could pay the interest, pay off all bonds that have come due, thereby lowering the country’s debt, and then reissue new debt back to the limit of the debt ceiling in order to generate new revenue. Moody’s is arguing, as I understand it, that there could be a brief default at the beginning of August because the U.S. wouldn’t have received enough monthly revenue yet in the first few days of the month to meet its obligations. That alone would be enough for a downgrade and consequent hikes in interest rates. And as MarketWatch’s contributor acknowledges, even meeting our debt obligations wouldn’t prevent an immediate and “chaotic” 44 percent cut in other government spending, with all of the systemic effects that entails. So yeah, a default wouldn’t last long, but it wouldn’t have to in order to do major damage.

Let’s go back to the McConnell plan for a minute, though. Below you’ll find Joe Scarborough, of all people, unloading on it as a total betrayal of the tea party. I agree that it’d be a horrible, horrible way to end the big debt-ceiling standoff. All I need now is for someone to give me a less horrible alternative. Is there one? Rich Lowry argues that the obvious move at this point would be for the House to pass its own debt-ceiling plan and pressure Obama to sign off on it as the clock ticks down. There’s just one problem:

Advertisement

By all accounts, several dozen Republicans are opposed to voting for any increase in the debt limit at all. This means Republicans don’t have 218 for anything. A friend of mine jokes, “I don’t think they even have 200 for anything.” This is why the only viable scenario right now for getting something through the House is a deal with the White House that most Republicans and a contingent of Democrats can support. Since that seems unlikely, it looks like we’re going to tick steadily down to August 2.

It may take some sort of disruption in the markets or in the operations of government to shake something lose. If that’s where we end up, who do you think will be blamed? If Republicans do take the blame, they’ll eventually crack and vote for a debt-limit increase in the worst possible circumstances. It’d be much better if they took the initiative now in a bid to avoid ending up in that fix or, if it comes to that, to place the blame on the Democrats. But they’re frozen in place by their own divisions.

Andrew Stiles estimates that there are 60 Republicans who could vote no on a deal, but I’m more interested in how many intend to vote no in principle on raising the ceiling no matter what sort of deal comes with it. (Bachmann, whose price is repealing ObamaCare, would count for these purposes since there’s no way that’s happening.) Is Boehner short of 218 on any and every potential compromise package? If so, then Democrats necessarily will dictate the terms of the final bill. Without them, nothing can pass. Some deal.

Advertisement

With that in mind, Dan Foster elegantly makes the case for the McConnell plan:

Ugly and unpleasant as it is, I frankly don’t find much in McConnell’s analysis to disagree with. There seems to be no plan, and no hopes for a plan, that can pass both the House of Representatives and the Senate. There is no deal to be had that is a deal worth having. In light of this truth, what is to be done?

Most conservatives — including three-quarters of our readers if the current results of the homepage poll are representative — would issue McConnell a “stand or die” order. Believe me, I understand the sentiment. But again, not all retreats are capitulations. McConnell clearly thinks of this as a tactical retreat in the service of his overarching strategic objective: to make President Obama a one-term president. You can hate the McConnell plan because you don’t share his overarching strategic objective — i.e., you think it is more important to stand on conservative principles, whatever the consequences, than it is to oust President Obama — or because you share McConnell’s strategic objective but you don’t think his choice of means will serve it. But neither is the same thing as hating the plan because it’s a “surrender.”

“There is no deal to be had that is a deal worth having.” If you doubt that that’s true, read Michael Tanner on how little how even the GOP’s proposal would accomplish in terms of deficit reduction. In a way, Obama’s been ahead of the curve on all of these dynamics, treating the debt ceiling less as an opportunity for a meaningful bargain than as a chance to position himself for next year as a pragmatic centrist. McConnell, realizing that nothing may be capable of passing the House, has now caught up and is playing Obama’s game with him. If this is all about positioning for next year and maximizing one’s numbers in Congress in order to pursue a real spending deal in 2013, then let’s make The One choke on his own fearmongering about default by handing him responsibility for the debt ceiling. It’s a cynical move, but then so is Obama’s maneuvering. One good turn deserves another.

Advertisement

Exit question: How about Kevin Williamson’s idea for a compromise plan? Raise the debt ceiling — but only just enough to finance our current debt service until we can reach a long-term plan.

Visit msnbc.com for breaking news, world news, and news about the economy

Join the conversation as a VIP Member

Trending on HotAir Videos

Advertisement
Advertisement
Advertisement
Advertisement