Even the Wonk Blog is worried about the debt

Recently, the Wonk Blog's Lori Montgomery wrote that "[n]o one is worried about the U.S. debt anymore. Not even Moody's, one of the nation's top ratings agencies."

This sounds like great news!  And if you stopped reading Montgomery's post after the first two sentences, you would be fooled into thinking that her statement reflects reality.

Alas, everything else in Montgomery's piece should leave all Americans concerned about the negative effect of the federal debt on our nation's future.

Consider, for example, what Montgomery reported that Moody's Senior Vice President Steven Hess said: "The overall message is, Number 1, we're confident in the credit-worthiness of the U.S. government for the next couple years."

And what will happen after "the next couple years?" Montgomery has the answer:

By 2018, the ratings agency expects annual deficits once again to surpass 3 percent of the size of the economy and to keep getting bigger. By 2030, debt held by outside investors is on track to rise from the current 75 percent of the size of the economy to 88 percent, an alarming increase that "likely would bring negative pressure" on the nation's sterling AAA credit rating.

The source of this additional debt? "The rising cost of healthcare services and demand for those services due to the aging of the population," which will slowly drive spending on Medicare and Social Security through the roof.

In other words, Moody's is not worried about the national debt's effect on the U.S. credit rating for – at most – three or four years.  But by 2018, things are going to get dramatically worse.

Fortunately, solutions abound.  However, Montgomery reports that Moody's is not confident about the effective implementation of the solutions:

... Washington has plenty of options for righting its future finances. ...[A]ll of them are what the report delicately calls "politically sensitive."

To put it more bluntly, the politicians probably won't have the chutzpah to implement the good policies related to Social Security, such as raising the retirement age, cutting benefits, or partially privatizing the program.  And Medicare reforms such as fraud prevention, retirement age increases, and payment reforms are just as politically problematic.

Even Hess, quoted by Montgomery, has little confidence that anything will get done in the near future:

The good news, at least from Moody's perspective, is that the nation has bought itself some time....

"We don't think the political configuration in Washington right now indicates they will actually do anything," Hess said. "But we're confident for the next several years.

It's not just Moody's expressing concern.  The Congressional Budget Office (CBO) recently said that America's "high and rising debt" will have "serious negative consequences for both the economy and the federal budget."

Those consequences include, but are not limited to, increases on the cost of interest payments; raising the cost of borrowing; potentially "a smaller stock of capital and lower output and income than would otherwise be the case, all else being equal"; and limitations on "policy-makers’ ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises."

CBO also says that our growing national debt could lead to "increasing the risk of a fiscal crisis" if investors require higher interest rates to purchase U.S. debt.  

It is worthwhile to note that the CBO's assessment was based upon the more optimistic, and less realistic, of its two projections.

To provide some context to all of this, the national debt is on track to become the worst in U.S. history – much higher than that seen at the end of World War II, which was itself a record.  Unlike the WWII era, however, today's debt is expected to grow as a percentage of the U.S. economy, as entitlement spending grows ever more expensive.

And while Moody's may not find the U.S. credit rating at risk for the next few years, the average American will be seeing the consequences of fiscal mismanagement in slower economic growth, which affects the real people Washington has continually failed with its unwillingness to deal forthrightly with the debt problem. 

It appears that, contrary to her lede and headline – the latter being "Why you can stop worrying about the national debt" – Montgomery is ignoring the plethora of evidence, even in her own post, showing that the debt is indeed a worrisome concern.