Geithner, Soothsayer, Says US Will Never Lose Aaa Rating

Treasury Secretary Tim Geithner, looking toward a future he cannot predict, said the US would not lose its Aaa rating.  He told ABC’s “This Week”, when ask if the rating will ever be dropped lower “Absolutely not.  And that will never happen to this country.” 

It is a risky stance for Geithner to take. Moody’s warned that the budget deficit, the growth in the national debt, and slow GDP recovery could cause the agency to consider a downgrade.

Geithner had little option other than to defend the value of US debt. He has listened to the Chinese, who hold almost $800 billion in US Treasury instruments, lecture the American government on their concerns about the future of the US economy. As the sovereign debt of countries including Greece and Spain have faced skepticism and concerns about default, ratings agencies have begun to look out several years to the day when the US, Japan, and the UK will be burdened with obligations that they either cannot repay or will have to offer higher interest rates to carry. Those higher interest rates will cause debt service to become a larger and larger part of the budgets of developed nations. The countries will be forced to raise taxes which could further slow GDP recovery.

Geithner has trouble as he tries to make his case because the deficit is projected to be nearly $1.6 trillion in the federal government fiscal year. Many experts, including those at the Congressional Budget Office, expect low GDP growth and high unemployment for several years which will undermine government receipts. In the meantime, the growth in the costs of Social Security, Medicaid, and Medicare– a tremendous parts of the federal cost base–is growing faster than the overall economy.

In short, Geithner has no better an idea about what will happen to America’s Aaa rating than the credit agencies do and those companies are not voicing optimism.

Douglas A. McIntyre