Former Reagan Aide Stockman: US Debt Downgrade ‘Foregone Conclusion’

Thursday, 13 Sep 2012 09:13 AM

By Dan Weil

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David Stockman, White House budget director under President Ronald Reagan, says it’s inevitable that the U.S. credit rating will be downgraded further.

But surprisingly enough, he thinks that’s a good thing.

Moody’s Investors Service warned Tuesday that if the government doesn’t address the fiscal cliff, by year-end, it would downgrade its triple-A rating for Uncle Sam. Standard & Poor’s already cut its triple-A rating in August 2011.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

The fiscal cliff refers to the automatic spending cuts and tax hikes that will begin Jan. 1 if the government doesn’t take action.

“It is a foregone conclusion that our credit ratings are going to be downgraded much, much further, because we cannot cope politically with the fiscal cliff that is looming," Stockman tells Yahoo.

Many economists view that as a horrible outcome, as it could induce a severe recession. But Stockman doesn’t view it that way.

"We are living way beyond our means," he says.

"No one deserves these tax cuts. [The fiscal cliff] will throw the economy into recession. We will struggle for a couple of years, but we will come out with some better fiscal balance on the other side."

As for Moody’s, many experts say it’s irrelevant.

“At some point, we might see a higher yield premium to own Treasuries, but I don’t think that’s the case now as this is just a shot across the bow,” Jack McIntyre, a money manager at Brandywine Global Investment, tells Bloomberg.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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