October 30, 2014
The Washington Post has the answer. It devotes an article to Moody’s assessment of the financial situation of the U.S. government.
Most people probably know of Moody’s as one of the credit rating agencies that were paid tens of millions of dollars to rate mortgage backed securities as investment grade during the housing bubble years. It’s not clear when its assessment of creditworthiness supposedly became more credible.
Anyhow, the ostensible good news is that Moody’s says we don’t have anything to immediately worry about, the debt to GDP ratio is coming down for now.
“But — and you knew this was coming — there are dark clouds on the horizon. By 2018, the ratings agency expects annual deficits once again to surpass 3 percent of the size of the economy and to keep getting bigger. By 2030, debt held by outside investors is on track to rise from the current 75 percent of the size of the economy to 88 percent, an alarming increase that ‘likely would bring negative pressure’ on the nation’s sterling AAA credit rating.”
Moody’s then gives us a number of suggestions that include cutting Social Security and Medicare benefits in order to avert this rise in the debt to GDP ratio to 88 percent. If you were wondering how bad it is to have a debt to GDP ratio of 88 percent, it is not a difficult question to answer. It turns out that there are many countries who already have debt to GDP ratios that are higher than the ratio that Moody’s is warning we could hit in 2030 if we’re not good.
There is Italy with a debt to GDP ratio of 136.7 percent and Spain with a debt to GDP ratio of 98.6 percent, according to the I.M.F. Even worse, we have Japan with a debt to GDP ratio of 245.1 percent. Even our good friends across the pond in the United Kingdom have a debt to GDP ratio of 92.0 percent.
Needless to say the markets are punishing these countries for their fiscal recklessness. As of October 30th, Spain had to pay an interest rate of 2.16 percent on its 10-year bonds, profligate Italy paid 2.46 percent. The United Kingdom had to pay 2.23 percent and Japan, hold your breath, had to pay 0.47 percent interest.
Look, we have real problems. Millions of people still can’t find jobs and the weak labor market is redistributing income upward. And we should be worried about global warming. This stuff about long-term budgets is just brought to you by Jeff Bezos and his Wall Street friends because they want to cut Social Security and Medicare.
No one should be taking economic advice from folks who rate subprime mortgage backed securities AAA.
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