Three former Treasury secretaries told CNN’s Fareed Zakaria on Sunday that while the US economy is resilient, officials must consider the long-term implications of the nation’s budgetary problems.
The US government’s credit rating was downgraded last week from an outstanding AAA to an AA+ by Fitch Ratings, one of the top rating agencies in the world, in “The erosion of governance over the last 20 years, which has been manifested in repeated debt limit standoffs and last-minute resolutions,”
Henry Paulson, who oversaw the Treasury Department under George W. Bush, stated, “It’s too bad (the downgrade) came right after we had a bipartisan agreement to deal with the debt limit.” “But in some ways, it’s a very important wake-up call.”
A last-minute bipartisan agreement in June that postponed the US debt ceiling until early 2025 was followed by the downgrading.
However, the agreement was reached following months of impasse on Capitol Hill that threatened to push the nation into default, underscoring the pointless brinkmanship that characterizes debt debates in Congress.
Most prominent economists have criticized Fitch’s downgrading by pointing to encouraging evidence. The economy is expected to have a “soft landing” rather than enter a recession now that inflation is at its lowest position in more than two years. Given the US’s apparent economic strength, Fitch’s assessment is perplexing.
Treasury Secretary Janet Yellen stated on Wednesday that she strongly disagreed with Fitch’s assessment and thought it was completely unwarranted.
The debt, according to Paulson, is not a pressing concern. But in the long run, it’s a significant problem, Paulson added. A great power has never survived while losing its financial clout in recorded history. Timothy Geithner agreed that the nation’s finances are still in need of improvement.
Geithner, who served as Treasury Secretary throughout the Great Recession and when Standard & Poor’s downgraded the country’s rating in 2011 from AAA to an AA+, the only other lowering in US history, remarked that “in the end, (the debt is) a judgment about the capacity of a country’s political system.