The Debt Threat

By Varney and Co

The government is running out of time as America’s debt continues to rise. According to Treasury Secretary Timothy Geithner, U.S. debt will reach its limit of $14.3 trillion by May 16th, and failing to raise the current debt ceiling may put the country at greater risk of defaulting on its loans. The nation’s options are limited, and as the clock continues to tick, both sides of the aisle have yet to reach an agreement to cut spending.

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As a result, Standard & Poors downgraded the U.S. debt outlook to ‘negative’ this morning. The news is causing alarm in the financial sector and sent shockwaves through the stock market. John Bolton, former U.S. Ambassador to the U.N., joined Varney & Co. this morning to weigh in on the issue.

“The President has shown no indication whatsoever that he really wants to get serious about the debt,” said Bolton. “I think there’s an explanation for that and that’s what they’re really worried about. This is not about spending or taxes, debt or deficit, it’s about the share of the federal government in the total economy of the country.”

The rating agency’s concerns about lawmakers’ ability to reach a debt-reduction plan was the driving force behind this morning’s downgrade. Not long after the downgrade, the U.S. Treasury department responded, seeking to reassure U.S. Treasury investors that the S&P is underestimating the U.S.’s ability to tackle its national debt.

But with little movement on Capitol Hill, John Bolton is also apprehensive. He thinks it’s the administration’s duty to solve the problem, and they should act fast.

“We hold the solution to the debt problem in our own hands,” said Bolton. “We created it. We can solve it.”

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Will today’s downgrade be a wakeup call for the administration? Only time will tell. But investors might not want to run for the hills just yet; Moody’s Investor Service and Fitch Ratings, the second and third big rating agencies, continue to have U.S. sovereign debt at AAA with a stable outlook.