NCPA - National Center for Policy Analysis


February 6, 2008

In case you missed it, say Tim Penny, a former Democratic congressman from Minnesota, and Charles Stenholm, a former Democratic congressman from Texas, Moody's Investors Service recently said that the bonds issued by the U.S. government may not be a completely safe bet in the future.  Why?  Because of the trillions of dollars in unfunded obligations to the Social Security and Medicare programs.

"These two programs are the largest threats to the long-term financial health of the United States and to the governments' AAA rating," Moody's Vice President Steven Hess said in the agency's annual report on the United States issued last month.

  • According to Tom Lemmon at Moody's, the underlying credit rating of the U.S. government faces the risk of downgrading in the next 10 years if solutions are not found to our growing Medicare and Social Security unfunded obligations.
  • Faced with rising entitlement spending due to baby boomer retirements and surging health care costs, Moody's is rightly reconsidering its confidence in the U.S. government's ability to repay its debts.
  • Tens of trillions of dollars in unfunded Social Security and Medicare obligations mean the government must choose between higher taxes or lower spending on these programs.

For years, however, politicians in Washington have simply failed to make a choice.  But failing to choose is, in fact, choosing to increase the implicit debts owed to these programs, which grow by trillions each year, say Penny and Stenholm.

The warning from Moody's shows that runaway entitlement spending isn't a far-off problem with little impact on Americans today.  Within a relatively short time, the "full faith and credit" of the U.S. government could come at a much higher cost, and that cost will be passed on to all Americans, today and in the future. The time to act is now, say Penny and Stenholm.

Source: Tim Penny and Charles Stenholm, "Entitlement Time Bombs Threaten Uncle Sam's 'Full Faith And Credit'," Investor's Business Daily, February 5, 2008.


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