What the S&P’s Warning on Spending Means for America

United States government, be forewarned: Your credit won’t always be good if you fail to get control of the debt while keeping up your big-spending ways. And merely raising the debt limit won’t be enough to solve your problems.

That was the message delivered yesterday by Standard Poor’s (SP) credit rating firm, which lowered its outlook on the U.S. credit rating. Though the SP kept the rating at AAA, it expressed a negative outlook for the future, saying, “We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013.”

Barclays Bank issued its own analysis of SP’s announcement, as James Pethokoukis writes. A key point:

This announcement was not about the debt ceiling; in fact, the debt ceiling is not even mentioned in the SP release… [E]ven if the debt ceiling debate were to be resolved in the near term, it would not be enough to restore the outlook to stable.

What’s needed is what many in Washington already knew to be true: the key to the U.S. government’s financial situation is to get spending under control, in both the medium and long term. SP’s announcement also makes clear how vitally important it is for congressional conservatives to insist on taking action immediately to meet those challenges on the debt limit bill that will be moving through Congress in the May–July time frame.

Some in Congress are hearing that message. House Majority Leader Eric Cantor (R–VA) responded to the news, calling spending reductions a necessary part of any debt limit action:

Serious reforms are needed to ensure America’s fiscal health, and today SP sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit. Today’s announcement makes clear that the debt limit increase proposed by the Obama Administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt.

Wall Street reacted adversely to the news, but the daily ups and downs of the markets aside, Congress and the President must be concerned about what is good for America in the long run. That’s why they should heed this warning and act now to get spending under control.

The U.S. House took a serious step toward putting America on a sounder fiscal path when it passed House Budget Committee Chairman Paul Ryan’s (R–WI) budget proposal. Heritage’s Alison Fraser says, under the plan, “solving the twin crises of spending and debt is achieved through real spending reductions and reforms—not new taxes or higher rates.”

Unfortunately, the Senate has failed to pass a budget, and President Obama has not offered a plan—he has delivered only a partisan campaign blast that failed to address the problem. There are things Congress can do to help achieve a stronger America. Fraser writes that to fix the federal budget, Congress should establish spending targets, fix the budget process, provide for a strong defense, implement spending reforms and keep taxes low.

Source material can be found at this site.

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