Risk-free has meant that there was no risk of default, so no interest rate penalty was charged when lenders lent money to the United States. That was because of over a century in which the US always has paid the interest payments on time and has never even threatened to default.
Those days are now behind us. The ignorant stupid tea baggers have gotten their hands on the House of Representatives and made a show of not raising the debt ceiling because they cannot convince sane people that their programs of cutting programs and lowering taxes on the wealthy make any sense. John W. Schoen of MSNBC tells us where we are now.
As the stalemate over debt talks dragged on Wednesday, Congress and the White House may have passed the point of no return in avoiding a U.S. government debt downgrade.The deadline that counts is not August 2nd. The deadline that counts has already passed and now the US treasury interest rate will be going up. And every penny extra it costs will be tax money Americans have to pay for absolutely nothing except as a surcharge on the stupidity and greed of the Republican Party and it's tea bagger Republicans!
If Uncle Sam loses his coveted AAA rating, the cost of borrowing goes up, the economy slows further and jobs get even tougher to find.
With hopes fading for a broad deficit-cutting package of spending cuts and tax increases, the White House Wednesday signaled that President Barack Obama could support a short-term extension of the U.S. borrowing limit as long as it was part of a broader long-term deficit reduction deal.
"We are in the 11th hour," said White House press secretary Jay Carney, repeating what Obama had said Tuesday. "We need to meet, talk, consult and narrow down in fairly short order what train we're riding into the station."
Carney also said the president would be willing to support a short-term extension as a stop-gap measure, but not without "an agreement on a larger deal."
Story: Democrats, Republicans meet with president separately
Though the Treasury has said it has enough cash until August 2 to keep paying the government's bills, including interest payments on $14 trillion in debt, time is rapidly running out for a comprehensive deal. The most promising to date, proposed by the so-called "Gang of Six" senators, would involve painful cuts and controversial tax increases.
Even if a broad agreement could be reached this week, both sides would have to hammer out specific line items and then return to their respective caucuses to sell the deal.
The alternative is a deal that raises the debt limit temporarily to allow the Treasury to pay its bills. But bond rating agencies Standard and Poor's and Moody's have said such stopgap moves would jeopardize the government's top-notch AAA credit rating.
"With the clock ticking, we doubt there is time to reach agreement on a comprehensive plan," said Paul Ashworth, chief U.S. economist at Capital Economics. "Instead, we expect a smaller scale plan to be passed that cuts $1.5 trillion from discretionary spending over the next decade. ... But it may not be enough to satisfy the rating agencies. The federal government is therefore still likely to lose its AAA rating within the next three months."
Addendum 7/21/11 12:28 PM CDT
Add this from Steve Benen this morning.
" Ezra Klein had a good piece on this the other day.So if the tea baggers and similar Republican Know-nothings in Congress like Michelle Bachmann get what they want and cause the American government to default, what are they going to do afterwards about they disaster they caused? Think they will stand up and admit that they caused the disaster and admit they were warned?
The first to fall will be “directly linked” debt. These are bonds that rely on payments from the federal government. Naomi Richman, a managing director in Moody’s Public Finance division, puts it bluntly: “There are certain kinds of municipal bonds that are directly reliant on Treasury paying or some other direct payment,” she says. “If those bonds don’t receive their payment, they have no other source of revenue.” So down they go.
Then there’s the “indirectly linked” debt. That’s debt from state government, local governments, hospitals, universities and other institutions that rely, in some way or another, on payments from the federal government. If Medicaid stops paying its bills, all the hospitals that rely on Medicaid’s payments become less creditworthy. If we stop funding Pell grants, then all the universities that enroll students who pay using financial aid become less creditworthy. And since the federal government passes one-fifth of its revenues through to the states, and the states pass those revenues through to cities, if the federal government stops paying its bills, all states and all cities are suddenly in worse financial shape, which will make it harder for them to get loans.
And then there’s everything else. Mortgages. Credit cards. Loans that businesses take out to expand. Much of the debt in the American economy, and in fact globally, is “benchmarked” to Treasury debt.
The entire credit infrastructure is premised on the notion that U.S. Treasuries are the safest possible investment — the full and faith and credit of the United States is impervious, and the nation’s credit rating is the best bet on the planet.
Or it was, right up until Americans thought it was a good idea to give confused Republican extremists control of the U.S. House of Representatives.
As Ezra noted in his piece, “If America’s credit rating falls, it’s taking a lot more than just Treasury securities with it.”
Of course not. These are not people who accept responsibility for what they caused. They will try to blame the Democrats for tanking the economy just to spite them. I'll guarantee the tea baggers causing this mess will not stand up and admit their fault. They'll be looking for someone else to blame.