Both Reid and Boehner’s Debt Ceiling Plans Would Still Likely Result In a Credit Downgrade for the United States
by George Washington
The fight between Harry Reid and John Boehner’s dueling debt plans is high melodrama.
But the fact is that both plans would likely result in a credit downgrade for the U.S.
Huffington Post notes:
CNN’s Erin Burnett relayed word from her sources on Wall Street that the newest Republican plan would not satisfy the credit rating agencies, which have soured on the idea of a short-term solution to the debt ceiling debate….
“I think it is important to emphasize that most people think both of the plans are really Band-Aids and don’t deal in any significant way with the spending and cost issues in the country,” Burnett said. “The issue was that Speaker Boehner’s plan does not cut enough spending right away. Harry Reid’s plan would cut about $2.7 trillion. Just because it is bigger than Speaker Boehner’s plan is really the reason the Boehner plan may still trigger a downgrade.”
Burnett was far from equivocal. At one point she added that, per a conversation with an investor, “in the short material, either deal will probably be enough.” But then she went back to waxing skeptically at the Boehner approach.
“Really interesting this afternoon, when I was talking to an investor who had met with the ratings agencies at Standard & Poor, talking about the potential of a downgrade — which by the way could raise interest rates the same way a potential default could — and they said the Boehner plan probably wouldn’t hit the hurdle to prevent a downgrade,” she added. “Even if that deal was reached, you could still get a downgrade. It is unclear whether that would happen for sure, but that would be a real possibility. Whereas the Reid plan, even though a lot of the parts of that are seen by many as gimmicks, probably would pass that hurdle and you wouldn’t get that immediate downgrade. That’s an interesting distinction.”
In actuality, the distinction is rather bland. The crux of the difference between the Reid and Boehner approaches is that one would last through the 2012 election by counting the so-called peace-dividend while the other one would require another vote as well as a (likely-to-fail) vote on the balanced budget amendment. Beyond that, they are fairly similar — each using the cuts agreed to during talks organized by Vice President Joseph Biden, each setting up a powerful congressional committee to find additional deficit-reduction measures.
Paul Craig Roberts – a true conservative, who was a Wall Street Journal editor and Assistant Secretary of the Treasury under Reagan – slams the Republican intransigence on the debt.
But the Democratic plan is no better.