When the credit rating agency Moody’s announced recently that the United States had moved “substantially” closer to losing its AAA bond rating, it largely ran as a wire brief, buried in newspaper business sections.Do you see the leadership out there to prevent this?
But this obscure announcement may one day be regarded as the beginning of the end of American prosperity.
Today, the United States has an unblemished AAA credit rating and a reputation as the most reliable borrower in the world. So investors lend us money at low rates. Washington is paying about 3.3 percent interest on $12.5 trillion in outstanding loans.
The good news is that, at current rates, that’s relatively affordable.
Now for the bad news. (You knew it was coming, right?) On a debt as colossal as America's, even a modest rise in rates would be hugely expensive.
If, for example, Washington had to pay the same rate as, say, Australia, it would be shelling out an additional billion dollars in interest. Every day.
Consider this: if everything goes according to plan, in 2020 we will be spending “only” $916 billion on interest. But if, as Moody’s is warning, the United States were to lose its AAA rating, rates would rise and payments could double.
Wednesday, April 07, 2010
Something to cheer you along today.