The unthinkable in Aspen could happen in Washington

By Troy Hooper
Real AspenJuly 14, 2011
A scenario former United States Treasury Secretary Henry Paulson described as “unthinkable” during a recent discussion in Aspen is apparently imaginable in the minds of Moody's Investors Service.

Moody's is the first of the big-three rating agencies to place the United States' triple-A rating on review for a possible downgrade. The agency said there is a small but rising risk the federal government could default on its debt.

Speaking earlier this month at the Aspen Ideas Festival, sponsored jointly by The Aspen Institute and The Atlantic magazine, Paulson doubted the government couldn't meet its obligations to its creditors.

"It's unthinkable to me that the United States of America is ever going to default,” he said.

Moody's is taking a different view, which sent dollar and U.S. stock futures tumbling late Wednesday. The rating agency put the nation's leaders on notice last month that the debt ceiling needed raising. Democrats and Republicans, however, are locking horns over the politics surrounding such a move.

The United States' triple-A rating is the highest possible, which has been the case ever since Moody's began evaluating the country's credit in 1917. Democrats want to increase taxes on the wealthy to help close the budget gap, which Republicans are resisting. Republicans insist on cutting spending before they will raise the debt ceiling.

President Obama and Grand Old Party lawmakers are meeting daily trying to reach an accord.
Ex-U.S. Treasury Secretary Henry Paulson

If the debt ceiling isn't raised by Aug. 2, the U.S. government will have to stop paying benefits like Social Security in order to pay its creditors first. But raising the ceiling won't come easy.

"I think it would be quite [unsettling] to investors and creditors of this country if we raise the debt limit without having a credible deficit reduction plan,” Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said while discussing the issue at the Aspen Ideas Festival, held June 27-July 3.

Retired Senator Alan Simpson (R-Wyo.), a speaker at the Aspen festival, worked with former Clinton administration economic adviser Erskine Bowles and a bipartisan committee last December to compile a list of recommendations that would alleviate, if not completely erase, the nation's debt quagmire.

"If we've forgotten we're Americans first instead of members of groups, we ain't got a prayer,” Simpson said.

"The time for B.S. is over," he added.

Robert Rubin, another former secretary of the U.S. Treasury Department, told the Aspen Ideas Festival audience that the country's largest problem may not be actual economics but deeply divided political parties.

"Our critical issues are technically solve-able. The policy makers who base their views on analysis and or facts instead of opinions and ungrounded ideology could find every common ground to move forward in ways that would meet the needs that we have and be broadly viewed as sensible to the American people,” he said.

Alan Greenspan, former chairman of the United States Federal Reserve, suggested, at the Aspen Ideas Festival, that the debt ceiling was a political red herring and that the real issue is to lower the deficit.

"I think frankly this is an unnecessary problem. The debt ceiling serves no useful purpose because once you've created a set of obligations you fix spending and we have a revenue code which engenders revenues…unless your arithmetic is subnormal, you know what the debt ceiling theoretically is,” he said.

Former President Bill Clinton, meanwhile, says President Obama must stay the course.

At the Aspen conference, the 42nd president of the United States advised that the 44th president should "not blink" in the face of Republican demands between now and Aug. 2. If a bipartisan compromise cannot be reached in the next three weeks, analysts say there is a real possibility that what Paulson finds unthinkable will actually happen.

What follows are videos from the Aspen Ideas Festival addressing the U.S. debt ceiling.

Former Secretary of the U.S. Treasury Department Henry Paulson on the debt ceiling and China:

Co-Chairman of The White House National Commission on Fiscal Responsibility and Reform Alan Simpson:

Chairman of the Federal Deposit Insurance Corp. Sheila Bair talks about the implications of not raising the ceiling:

Former Chairman of the U.S. Federal Reserve Alan Greenspan asserts that the debt ceiling is useless:

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