Setting the Economy on Fire

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If the United States defaults on its debt, its credit rating will be downgraded catastrophically by every ratings agency. That’s not going to happen because the United States isn’t going to default, but Standard & Poor’s has warned that it might downgrade U.S. debt regardless. Even if there’s no default, says S&P, it might take action if Congress fails to credibly cut the long-term deficit by $4 trillion.

So how worried should we be about this? The answer comes from two places. First this from Time’s Massimo Calabresi:

S&P is an outlier among the top three ratings agencies: Moody’s and Fitch say they won’t even consider a downgrade unless there’s a danger of an actual default.

And this from the mysterious Wall Street lawyer who writes Economics of Contempt:

So even if S&P follows through on its threat — and frankly, I suspect it’s just a bluff — it probably won’t have any immediate effect on the market for U.S. bonds. Pension funds won’t have to engage in a massive sell-off, state and local bonds will be fine, and life will go on.

In other words, the threat of actual default is nil, and the threat of downgrade is pretty close to nil too. This goes a long way toward explaining why bond markets aren’t panicking over the debt ceiling fight.

The real danger, of course, is different: shutting down the government for any extended period would likely have a disastrous effect on our still weak economy. Unfortunately, keeping the government operating at the cost of passing the deficit deals currently on the table would probably also be pretty disastrous. We are, for no good reason, deliberately setting our economy on fire. It’s insane. Nero may have fiddled while Rome burned,1 but at least he didn’t set the fire himself.2

1Though probably not, actually.

2Then again, he might have.

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

payment methods

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