Politicians just can’t break their addiction to debt

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business.timesonline.co.uk/tol/b … 954495.ece

Politicians just can’t break their addiction to debt
December 13, 2009
Irwin Stelzer

It took the current administration less than a year to reduce the United States from the country with a currency that is considered a safe haven during international storms, to one that is warned by a rating agency that unless it mends its profligate ways it will lose the triple-A credit rating it has had since US government debt was first assessed in 1917. Who would have thought when Barack Obama took the oath of office some 11 months ago that Greece, Britain and America would attract the attention of the rating agencies in the same week.

But here we are, caught in what consultants at the Lindsey Group call an “attack on the sovereigns”. Greece was downrated because its fiscal deficit is 12% of GDP, and the European Central Bank is tired of buying its banks’ paper. Ireland and Spain, which also have deficits equal to 12% of their GDP, were put on credit watch. America is in the 12% club, but being America, with a currency that central banks and others still hold and want to hold in huge amounts, was granted a reprieve.

Our “public finances are deteriorating considerably … [and] the question of a potential downgrade of the US is not inconceivable”, says Pierre Cailleteau, managing director of the sovereign risk group at the Moody’s rating agency, but such a move is not imminent.

…(cont’d)