Derek Thompson picks up Michael Kinsey's debt scare torch, meditating on the potential for a "debt crisis" in the next decade. However, the scary graph he cites assumes the Bush tax cuts don't expire -- a good chunk of them will, and that's one likely policy change not included in its data. Even in that projection, debt at the end of the decade is unpleasant but manageable at less than 10 percent of GDP, so I don't think we have much to worry about in the near term.
But what strikes me as truly absurd is that Thompson is taking Moody's, the bond-rating agency, so seriously:
If the United States suffers a debt crisis in the next decade, historians may well look to March 15, 2010 as an inflection point. On that day, Moody's released a report acknowledging that while the United States' debt was still triple-A rated, the government's margin for error had "substantially diminished" in the wake of the recession and trillion-dollar deficits. Like a Rorschach ink blot, the report was many things to many people -- and it mostly served to confirm their deep suspicions. Deficit hawks saw an omen. Others saw ... well, nothing at all.
This is the same Moody's that thought synthetic CDOs full of toxic mortgage loans were AAA securities, right? The same one that didn't bother looking at the loan tapes of any of the mortgage-backed securities that it gave the old stamp of approval? If anything, we should be worried that Moody's is so bullish!
In all seriousness, there's not a lot of evidence that our debt is sending interest rates skyrocketing or that we can't manage the country's finances with our current institutions. While I'm generally as down on the policy-making process as Thompson is -- he worries the real problem is that our political system can't find a solution to the debt -- it's a particularly awkward time to make that argument a week after Congress passed two huge deficit-reducing bills that began much-needed reform of the health-care system and student lending.
-- Tim Fernholz
