Moody’s: Eliminate The Debt Cap And Save US Rating

Moody’s has a simple solution to the U.S. debt cap problem and the threat over the country’s Aaa rating: Eliminate the cap completely. It is an ingenious and practical solution that would save America from the repeated threat of downgrades that exists each time the two political parties use the cap as a way to forward their financial agendas.

Critics of such a suggestion say that it would allow a sitting president to increase deficits with ease. But that is not true, which makes the Moody’s suggestion even more attractive.

Congress has a check against a series of White House decisions to increase the debt cap. Either party with a majority in Congress can block the administration’s plan for any rise in deficit expenditures. That means that any fight over the issue to raise the cap is simply becoming a debate over the budget. This approach to the problem assumes that there will always be two sides that can effectively veto one another’s fiscal programs.

The effective veto system may not work when the White House and Congress are controlled by one party. That would appear to be an argument for a the current debt cap system, but it is not a good one. Politicians must still face voters. That leaves the electorate with the final decision about how high the debt cap and deficit spending can go. Economists might argue that voters do not understand the complexities of the federal budget. Alternatively, even those who do understand it may decide the issue is not important enough for them to take the short time it takes to go to the polls.

The Moody’s suggestion, if taken, means that U.S. citizens have to care enough about their own financial future to decide it by voting legislators in and out of office. It means that voters have to care enough about Social Security, Medicare and military expenditures to exercise their right to reject or accept the most basic decisions about how wide deficits can become. It means they have to care about how high deficits will eventually raise interest rates and whether high interest rates will curtail improvements in employment.

The most important effect of the Moody’s suggestion is that it ultimately takes decisions about the debt cap out of the hands of politicians.  It would stop the trepidation that hits the capital markets each time time there is a political standoff over America’s financial state. That is, if voters care enough to go to voting booths to determine whether the deficit should be raised or lowered.

Douglas A. McIntyre