On June 2, 2011 Moody's Investors Services, a credit rating agency for government entities, issued a serious warning about the government's credit standing. Moody's cautioned its next rating for the U.S. will "depend on the outcome of the negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative."
This announcement came on the heels of Standard and Poor's, another credit rating agency, downgrading the outlook for the U.S. credit rating because Washington appeared to have no plan to reign in budget deficits and debt. Still yet, President Obama, Treasury Secretary Geithner, and more than 100 Congressional Democrats called for an unconditional, or "clean," increase in the U.S. debt limit. That is, with no spending reductions.
Fortunately, two days before Moody's issued its warning the U.S. House of Representatives defeated a resolution to increase the debt limit without any spending cuts attached, and did so with a clear bipartisan majority.
Erskine Bowles, who chaired President Obama's Fiscal Commission and served as Chief of Staff to President Clinton, has said the era of debt denial is over. This vote declared to the American people and to the credit rating agencies business as usual in Washington is over. Not only is the era of debt denial over, but so is Washington's out-of-control spending.
It is time to be honest about our deficits and debts. At more than $14 trillion, our debt is as large as the entire U.S. economy and is putting the American Dream at risk for future generations. It has become a hindrance to economic growth -- costing one million jobs at a time when the unemployment rate has not been this high for this length of time since the Great Depression.
Failing to act and address our debt head-on would be similar to actually defaulting on our debt. In both cases, the U.S. government would experience a significant downgrade in its credit rating, which increases interest rates making payments for things like a car and home loans more expensive. It also would cause an unprecedented mark sell-off, crashing the stock market, with a cascading effect on everything from pensions and 401ks to gas and groceries. And, it would make an already shaky economy even worse -- leading to less job creation.
The greatest threat to the U.S. economy would be guaranteed by simply increasing the debt limit without cutting a penny of spending. Research by international experts clearly demonstrates spending reforms, not tax increases, are the most effective path to fiscal consolidation. This vote made clear deficit reduction must and will be part of any bill to increase the debt limit. Defeating a "clean" increase puts us on a path which Nebraskans deserve -- a strong, reliable, and financially secure America for the future.
For more information about spending cuts, the latest developments from Congress, or to sign up for my e-mail newsletter, please visit my website at www.adriansmith.house.gov.