by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Rating agency Fitch downgraded U.S. sovereign debt from AAA to AA+. That’s only the second time any of the big three rating agencies have downgraded U.S. debt. S&P did so in 2011.
Treasury secretary Janet Yellen said she “strongly disagrees” with the decision, and she’s free to do so. There is a certain amount of arbitrariness in rating agencies’ decision-making, and it’s not the end of the world. But policy-makers, including Yellen, should take seriously the federal government’s spending problems, which left unfixed will lead to much more severe consequences than this.
One of the most damaging bipartisan beliefs in Washington right now is that the debt is a second-order problem and entitlement spending is not in need of reform. Democrats and Republicans have both spent irresponsibly, in recent years under an assumption of low interest rates that no longer holds.
Why Fitch chose this particular moment to downgrade the debt is unclear, but most of the reasons it lists for its decision are sensible concerns. If anything, it might be a little too nice.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.” What confidence? The federal government has run a deficit, whether the economy is booming or busting, in war or peace, every year since 2001. Even before that, Congress rarely passed spending bills on time in accordance with the law.
Government by continuing resolution, where Congress rubber-stamps previous years’ appropriations, has become the norm. And that’s for the parts of the budget that are supposed to be discretionary. The mandatory parts, which account for most of the budget in absolute terms and most of the projected growth in the budget in the future, aren’t debated at all.