Tuesday, April 5, 2011

Downgrade US debt over the political shenanigans?

Edward Harrison of Credit Writedowns thinks so:

"So that's where we are right now in the U.S. There is the possibility if this gets out of hand and spooks business, that it crimps economic growth, nascent job growth, and that this leads to a double dip recession and a debt deflation. Who gets blamed for that? I think the whole thing shows a recklessness in American politics that should be rewarded with a sovereign debt ratings downgrade. This is the sort of irresponsible brinkmanship that you don't see in other developed countries –even Belgium. For me, it is a clear sign of the decay of American governance and the political system."

[Emphasis added]



apj said...

It's the 'willingness to pay' argument.....clearly the 'ability to pay' is there, but equally clear is the fact that US politics is so poisonous that it's bordering on anti-Americanism. I hope that doesn't sound extreme, but I'm just describing the state of play. They clearly couldn't give a rats about the United States. Politics to them is a means to their own end.

Second...isn't the debt ceiling applicable to 'new' borrowing? ie. all current coupons are not at risk of not being paid right?

Matt Franko said...


I believe so for the 'on the run' govt securities....

It's a little fuzzy but I believe there is something in the US constitution that mandates those coupons HAVE to be paid.

Tom Hickey said...

There is precedent that the government must meet its obligations under the 14th Amendment, section 4.

Congress can willfully default, but the interest on the debt will be paid per court order when the suit comes in, if precedent is followed.

Tom Hickey said...

adj, the default applies to all existing obligations once the debt ceiling is reached, prior appropriation and commitment not withstanding.

The debt ceiling does not just prohibit new spending. It prohibits payment of all existing obligations.

mike norman said...


Thanks for clarification. I will be talking about that today on RT News.

Tom Hickey said...

Mike, I believe that beowulf cited specific precedent somewhere, but I can't find it now. Here is a post at The Economist that may help clarify.