John Chambers thought of himself as a quiet, nerdy guy until he started receiving death threats in 2011. The next thing he knew, his Gmail account was hacked and he received an alert that someone was trying to steal money from his investment account.
Chambers was one of three authors of an August 2011 Standard & Poor's report that lowered the U.S. credit rating, saying American federal government bonds were no longer AAA — the highest rating issued — because “political brinkmanship” between Republicans and Democrats over the nation's finances meant the country was no longer an absolute guarantee to repay the money it owed.
The report, which stripped the country of a AAA rating it had enjoyed for 70 years, stunned the world and drew furious pushback from the top Obama administration officials. It also turned Chambers' life upside down. Threats from strangers to harm him and his family became so bad that S&P hired a bodyguard to follow him for two weeks. Chambers, who lived in New York City at the time, couldn't even walk his dogs in sleepy Riverside Park without an armed guard. He was instructed not to take the subway.
Six years later, Chambers feels vindicated in his call.
Since the downgrade, the nation's lawmakers have held a series of standoffs over the nation's finances, using the threat of default in an attempt to leverage other concessions on spending and taxation. And while the nation has yet to default, a lurch from one crisis to the next appears to be the new normal when it comes to the United States paying its bills.
The latest standoff appears to have been temporarily defused on Wednesday, as President Trump said he had managed to negotiate a deal with Democrats to avoid default. Trump and top Democratic leaders said they agreed to raise the debt ceiling — a cap on how much money the government can borrow to pays its bills and repay off its loans — for another three months, as well as providing aid to hurricane-afflicted parts of the country.
If approved, the deal moves the country away from an immediate crisis. The U.S. Treasury had just $32 billion in cash on hand when it made its latest report on Sept. 1, only enough to keep the government out of default for a few weeks.
But the extension doesn't solve the underlying problem, and it sets up Republicans, Democrats and the White House for another debt-ceiling standoff in December — a logjam that could be even harder to loosen, as Republicans are reportedly furious over the deal that was reached by Trump and Democratic leadership.
The next debt ceiling crisis will hit around December 15, just before the holidays. Democrats might not come to Trump's aid then, forcing an even bigger standoff among Republicans ahead of the 2018 mid-term elections. Treasury normally uses "extraordinary measures," a fancy way of saying accounting tricks, to extend the time before the debt limit is hit by a few months. Details are still being ironed out, but the deal Trump made this time may prevent any use of the extraordinary measures.
While past crises, including in 2011 and again in 2013, were the result of struggles between President Obama and Republicans in Congress, the current standoffs come at a time when the GOP is totally in control, further underscoring the country's political dysfunction. That a government united under one party cannot reliably keep the government open and paying its debts casts doubt on the country's ability to tackle larger, more complicated issues, including its long-term budget woes.
“It’s beyond anyone’s imagination that you would have one party that would control all parts of government and have this debt fight,” said Chambers, who is retired. “It really speaks to poor governability.”
If lawmakers ever miscalculate and do send the government into default, the results would be catastrophic, financial and economics experts say.
“It would be like Lehman on steroids,” said Chambers, referring to the global financial crisis that started in 2008 when investment bank Lehman Brothers collapsed.
He's not alone in such dire pronouncements. Default would be “uncharted waters” said Gene Sperling, who was Obama's top economic adviser. He thinks S&P's 2011 downgrade was a huge mistake, but he agrees that there is a lot more risk of calamity than most people, even on Wall Street or in Congress, fully understand. “The debt limit is not something anyone should play games with and hold hostage,” he said.
The United States has been able to borrow $20 trillion from lenders around the world largely because it is seen as the world's most reliable borrower. Anything that rocks confidence in the “full faith and credit” of the U.S. government would be likely to send markets nose-diving, trigger a rash of lawsuits and make it far more difficult and expensive for the United States to borrow in the future. Short-term bonds that are supposed to pay up in the coming weeks are already becoming a lot more expensive as investors worry that Congress might not get its act together in time.
The United States continues to borrow more money, adding to the debt. Trump's planned tax cuts could add even more, worsening the country's fiscal condition. On the spending side, Trump does not want to touch Social Security or Medicare, two of the main drivers of the country's unsustainable fiscal path, and he wants to increase military spending. There seems to be no political will to deal with anything beyond an immediate crisis.
Of the big three ratings agencies, S&P is the only one to have cut the United States' AAA grade. But Fitch, one of the other two, recently warned that it would seriously consider downgrading as well if Congress does not raise the debt ceiling on time. Even Moody's is growing weary of the U.S. government's ability to get anything done.
Most think Congress will get the job done — for now. But Chambers warns that the real issue is deeper than just the debt limit. It is about whether the United States can get anything done, even when one party controls all the branches of government.
“There is something there to be very concerned about America’s governability more broadly,” he said.