The primary factors in analyzing the creditworthiness of the US government are a lack of spending discipline, a lack of courage in addressing the sustainability of Social Security and Medicare and a large explicit debt already in place. Secretary of Treasury Timothy Geithner and others have voiced concerns about the potential downgrading of US government debt.

Geithner and others have asserted Congress needs to raise the debt ceiling in order to save the credit rating of the US government. Geithner knows that addressing the spending discipline issue as well as the Social Security and Medicare issues are more important than the raising of the debt ceiling.

The first criterion used in evaluating the credit of a borrower is whether or not they have an understandable plan to generate the funds required to pay for the interest and return of principal on the money borrowed. Secretary Geithner, the US Senate and President Obama appear to have no workable budget for the upcoming fiscal year and seem to be comfortable with planning trillion dollar deficits for as long as they are in office. Lenders do not like the idea that there is no plan to repay the money borrowed.

As a member of the Board of Trustees of Social Security and Medicare, Secretary Geithner signed the annual report. In the summary, Geithner and the other board members said:

“The financial conditions of the Social Security and Medicare programs remain challenging. Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided.

The long-run financial challenges facing Social Security and Medicare should be addressed soon. If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected have adequate time to prepare. Earlier action will also afford elected officials with a greater opportunity to minimize adverse impacts on vulnerable populations, including lower-income workers and those who are already substantially dependent on program benefits.”

Geithner’s correct assessment of the unsustainability of Social Security and Medicare combined with the existing explicit debt are big reasons for credit analysts and lenders to be nervous about the US government as a borrower. Obama, Geithner and the rest of the administration concerned about the credit rating of the US government need to be working on a plan to make Social Security and Medicare fit with a plan to pay the interest and principal on the debt.

Raising the debt ceiling is an insignificant credit rating issue compared to having a budget that indicates a long-term willingness and ability to repay lenders. If President Obama, Secretary Geithner and the rest of the administration want to improve the creditworthiness of the US government, they need to put together a budgetary plan that lenders can believe will allow the US to be able to repay its debts.

People who want to raise the debt ceiling without a plan on how to pay the interest or repay the principal are being reckless with the credit rating of the country.

by Kelly Haughton, creator of the Russell indexes and CEO of Global Index Group

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