海角大神

The rating agencies are at it again. Moody鈥檚 Investors Services says it鈥檚 likely to downgrade U.S. government bonds if Congress and the White House don鈥檛 reach a budget deal before we go over the so-called 鈥渇iscal cliff鈥� on January 2, when $1.2 trillion in spending cuts and tax increases automatically go into effect.

Apparently the credit rating agencies can鈥檛 decide which is more dangerous to the U.S. economy 鈥� cutting the U.S. budget deficit too quickly, or not having a plan to cut it at all.

Last year鈥檚 worry was the latter. In the midst of partisan wrangling over raising the nation鈥檚 debt limit, Standard & Poor鈥檚 downgraded U.S. debt 鈥� warning that Republicans and Democrats didn鈥檛 have a credible plan to tame the deficit.聽

Now Moody鈥檚 is worried about the opposite: The spending cuts and tax increases in the Budget Control Act that will automatically kick in at the start of 2013 鈥� unless Congress decides on a better and presumably more gradual approach 鈥� are so draconian they鈥檒l push the economy into a recession.

The ratings agency schizophrenia is understandable. Everyone in Washington 鈥� and just about everywhere else 鈥� knows the budget deficit has to be dealt with. But anyone with half a brain (including Washington) also knows that when unemployment is high and economic growth still painfully slow, cutting the deficit too much now would make a bad situation even worse.

Remember, the real problem isn鈥檛 the deficit per se. It鈥檚 the deficit in proportion to the size of the economy. Cutting too much too soon will tip the economy into recession because it would reduce overall demand for goods and services when private demand falls way short of what鈥檚 needed. And if the economy goes into recession and begins to shrink, the ratio of deficit to the economy gets worse. That鈥檚 the austerity trap Europe has fallen into.

Even if the deficit continues to grow in proportion to the economy, we鈥檙e safe as long as those who lend money to the U.S. aren鈥檛 worried about being repaid and therefore don鈥檛 demand high interest rates in return for their loans.

By this measure, the American economy appears safer than ever. Despite all the harrumphing from the credit-rating agencies, the United States has never been able to borrow money more cheaply than it can right now. That鈥檚 because no matter how bad the deficit situation looks here, it鈥檚 worse in places like Spain and Italy. And no matter how deadlocked Congress becomes, the U.S. is still the most stable and reliable system in which to put your savings.

The fiscal cliff is a real worry. And it鈥檚 a worry precisely because the budget deficit isn鈥檛 鈥� at least not now. When unemployment is high and growth is anemic, we need as much fiscal stimulus as we can manage.

As long as the rest of the world is willing to lend us their savings so cheaply, we鈥檇 be wise to use it to rebuild our crumbling infrastructure and our schools and parks 鈥� and thereby put more Americans back to work 鈥� rather try to cut the deficit too much and too soon.