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Credit agencies heighten warning on U.S. debt
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Kai Ryssdal: The 2nd of August this year comes on a Tuesday, so that gives us just over two and a half weeks to figure out what to do about the debt limit. By us, of course, I mean Washington politicians.
It's entirely possible, though, that the negotiations are about to be taken out of their hands. Moody's -- the credit rating agency -- has joined Standard & Poor's in suggesting America's triple-A credit score might be at risk if there's no deal to be done. Our New York bureau chief Heidi Moore reports.
Heidi Moore: Ernest Hemingway's friends once asked him how he went broke. His answer? "Slowly. Then all at once."
The U.S. is in the same boat. We may not be able pay our bills come August 2nd. Moody's and S&P are threatening to downgrade us. Again. It sounds bad. But our financial troubles are just beginning, says Robert Tipp. He's the chief investment strategist for Prudential Fixed Income.
Robert Tipp: I think it's a slow burn. I think getting downgraded a tick is not a disaster. It's undesirable.
Tipp said the U.S. has never been downgraded, even though we've been borrowing for years and have no credible plan to pay it off. So I asked Chris Whalen, a well-known financial analyst, what investors who hold U.S. bonds could do if America defaults.
Chris Whalen: Where are they going to run if the Treasury is late paying its bills? They got nowhere to run. If we're a few days late, the world will not end. People will wait.
A day after Moody's threat, investors aren't acting as if they're worried. Today, investors couldn't get enough of the new 30-year Treasury bonds. Whalen believes the credit agencies are bluffing. He says Moody's and S&P know that if we go down, we'll be taking everybody else with us.
Whalen: All that will happen if they downgrade the U.S., the whole market will be downgraded. Because everybody trades off the U.S.
That's because we're still the biggest economy on earth. And the dollar is not just our currency -- it's the world's currency. Central banks have trillions to invest, and they do that mainly in dollars. But maybe they won't do that forever.
In New York, I'm Heidi Moore for Marketplace.
The quotation you attribute to Hemingway is actually from one of his novels, The Sun Also Rises, and comes out of the mouth of one of the characters in the novel -- Mike Campbell, who's Brett Ashley's fiancee. The exact quotation is, after Bill Gorton, asks Mike Campbell how we went bankrupt: "Two ways. Gradually and then suddenly."
The rest of the quotation may also have been relevant for this story. Bill asks Mike what brought it on, and he responds" Friends. I had a lot of friends. False Friends. Then I had creditors too. Probably had more creditors than anybody in England."
When I heard this story on the radio, I was flabbergasted. Quoting one source who thinks failure to raise the debt ceiling will be a disaster and one who thinks it will be "no big deal," and giving the impression that it means that there are two equal "sides" to the story is the worst kind of lazy balance-as-objectivity journalism.
I don't care how "well-known" Chris Whalen is, the belief that somehow Treasury bond rates (and all the state and municipal bonds that depend on them) won't be affected by a massive drop in the confidence in the responsibility of those governing the United States, or that the ratings agencies are "bluffing" and won't actually downgrade bonds that are riskier just because money "has nowhere else to go" seems, frankly, insane.
The most irresponsible part of his posturing is the idea that it'll be no big deal if we're "a few days late." In addition to everything else, exactly why does he think a failure to raise the debt ceiling will last only a few days, when people like him are telling the Know-Nothings in Congress that it's no big deal?
This is a joke, right? Did you look at the value of the US Dollar? In the last 2 days we lost 2 cents (2%) on the dollar, every dollar in the US economy. In two days. People are selling T-Bills and buying Gold. Seen to gold prices? This piece was a flat out lie. Sorry if the truth is not "civil". Please be honest.
