Bruce Bartlett on America's Fiscal Crisis

In his Forbes.com column, Bruce Bartlett wonders when and how America will face its fiscal crisis:

So if default is not an option, then what would trigger a fiscal crisis? I believe it will come from the credit rating agencies, such as Moody's and Standard and Poor's, which rate sovereign debt as well as that of private businesses and subnational governments.

For at least five years these agencies have been warning that America's AAA bond rating isn't guaranteed. Any downgrade would send shock waves throughout the entire financial system because so many bonds are priced off of equivalent Treasuries, which are assumed to have zero risk of default. Thus a rise in Treasury rates, which would necessarily follow from a credit rating downgrade, would automatically raise other interest rates.

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