I was surprised to wake up this morning and read that the government shutdown had been called off. The story is that conservative leaders persuaded the House Republican leadership not to use the health care issue and the budget process as an excuse to shut the government down. It’s a victory for the House Republican leadership, which showed it still has enough push to get the extremist members of its caucus into line.
But this episode has put more strain on the United States’ credit rating. The government will now have to make many more cuts in the next budget in order to have the money to meet its interest payments. Now seen as less credit-worthy than before, the U.S. Treasury will have to pay more to borrow money. Of course, this also means that the bondholders will be collecting more money from taxpayers. Interest costs might just have gone up by a billion dollars a day because of this latest legislative dysfunction, so no one should imagine that the few billion dollars cut from the budget along the way will actually save the taxpayers any money.
Rather, the higher borrowing rates resulting from this episode are just another example of a transfer of wealth from taxpayers to billionaire-investors.