Treasury confident it will keep AAA rating

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By David M. Dickson

Two days after the White House revealed that the budget deficit for fiscal 2009 will set a record approaching $500 billion, the Treasury Department announced its strategy to finance all that extra borrowing.

Anthony Ryan, Treasury's acting undersecretary for domestic finance, announced Wednesday that the federal government will borrow $171 billion during the July-September quarter. That's the second-largest quarterly financing requirement in history - and fiscal 2009 doesn't even begin until Oct. 1.

Mr. Ryan expressed confidence that the federal government would continue to maintain its AAA credit rating even as budget deficits rise.

"It's a huge advantage to have that AAA status, and we are committed to that," Mr. Ryan said.

A top-notch credit rating allows a borrower to raise funds at lower interest rates.

Earlier this month, both Moody's and Standard & Poor's, two leading credit rating agencies, declared that the United States would not be in danger of losing its AAA rating, even if it had to rescue Fannie Mae and Freddie Mac, the government-sponsored enterprises that own or guarantee half of the nation's home mortgages.

James Horney, an economist with the Center on Budget and Policy Priorities, agreed.

"In the short run, the deficit and debt, as a percentage of the economy, are within the range needed to maintain our AAA rating," he said. "Ten years from now, if debt is still rising and nothing has been done" to address the nation's long-term fiscal problems, "people would start to get nervous."

Earlier this year, Moody's said the United States could lose its AAA rating if it did not take radical action to slow its health care spending and curb its Social Security obligations.

"If no policy changes are made, in 10 years from now we would have to look very seriously at whether the U.S. is still a AAA credit," Steven Hess, Moody's lead analyst for the United States, told the Financial Times in January.

On Monday the White House raised its estimate of the 2009 deficit to $482 billion, nearly three times the 2007 deficit. The 2009 deficit estimate is also $69 billion above the previous record of $413 billion set in 2004.

However, the 2009 deficit will almost certainly exceed $500 billion because the White House's latest estimate includes only $70 billion to fund the global war on terror. For 2007 and 2008, Congress authorized spending an average of $184 billion per year on that goal.

When Congress passed its housing bill last week, it increased the statutory debt limit from $9.8 trillion to $10.6 trillion. According to the revised budget estimates issued Monday, the nation will probably bump up against the new limit sometime in fiscal 2010.

However, the increase in the national debt during fiscal 2009 will actually exceed $800 billion. The official figure is $817 billion, but the eventual total could easily go beyond $900 billion. The national debt has never increased by as much as $600 billion in a single year.