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America’s triple A rating is at risk By David Walker Published: May 12 2009 20:06 | Last updated: May 12 2009 20:06 Long before the current financial crisis, nearly two years ago, a little-noticed cloud darkened the horizon for the US government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us. That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding. Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar. The US, despite the downturn, has the resources, expertise and resilience to restore its economy and meet its obligations. Moreover, many of the trillions of dollars recently funnelled into the financial system will hopefully rescue it and stimulate our economy. The US government has had a triple A credit rating since 1917, but it is unclear how long this will continue to be the case. In my view, either one of two developments could be enough to cause us to lose our top rating. First, while comprehensive healthcare reform is needed, it must not further harm our nation’s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future. Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us. For too long, the US has delayed making the tough but necessary choices needed to reverse its deteriorating financial condition. One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate. The credit rating agencies have been wildly wrong before, not least with mortgage-backed securities. How can one justify bestowing a triple A rating on an entity with an accumulated negative net worth of more than $11,000bn (€8,000bn, £7,000bn) and additional off-balance sheet obligations of $45,000bn? An entity that is set to run a $1,800bn-plus deficit for the current year and trillion dollar-plus deficits for years to come? I have fought on the front lines of the war for fiscal responsibility for almost six years. We should have been more wary of tax cuts in 2001 without matching spending cuts that would have prevented the budget going deeply into deficit. That mistake was compounded in 2003, when President George W. Bush proposed expanding Medicare to include a prescription drug benefit. We must learn from past mistakes. Fiscal irresponsibility comes in two primary forms – acts of commission and of omission. Both are in danger of undermining our future. First, Washington is about to embark on another major healthcare reform debate, this time over the need for comprehensive healthcare reform. The debate is driven, in large part, by the recognition that healthcare costs are the single largest contributor to our nation’s fiscal imbalance. It also recognises that the US is the only large industrialised nation without some level of guaranteed health coverage. There is no question that this nation needs to pursue comprehensive healthcare reform that should address the important dimensions of coverage, cost, quality and personal responsibility. But while comprehensive reform is called for and some basic level of universal coverage is appropriate, it is critically important that we not shoot ourselves again. Comprehensive healthcare reform should significantly reduce the huge unfunded healthcare promises we already have (over $36,000bn for Medicare alone as of last September), as well as the large and growing structural deficits that threaten our future. One way out of these problems is for the president and Congress to create a “fiscal future commission” where everything is on the table, including budget controls, entitlement programme reforms and tax increases. This commission should venture beyond Washington’s Beltway to engage the American people, using digital technologies in an unparalleled manner. If it can achieve a predetermined super-majority vote on a package of recommendations, they should be guaranteed a vote in Congress. Recent research conducted for the Peterson Foundation shows that 90 per cent of Americans want the federal government to put its own financial house in order. It also shows that the public supports the creation of a fiscal commission by a two-to-one margin. Yet Washington still sleeps, and it is clear that we cannot count on politicians to make tough transformational changes on multiple fronts using the regular legislative process. We have to act before we face a much larger economic crisis. Let’s not wait until a credit rating downgrade. The time for Washington to wake up is now. David Walker is chief executive of the Peter G. Peterson Foundation and former comptroller general of the US

Quebec opposes Harper proposals to alter Senate BILL CURRY From Thursday's Globe and Mail June 5, 2008 at 5:12 AM EDT OTTAWA — Quebec is threatening to haul Ottawa before the Supreme Court of Canada over what it believes are unconstitutional Senate reform measures proposed by the Harper government. Raising the ghost of the failed Meech Lake accord, Quebec Intergovernmental Affairs Minister Benoît Pelletier said the Senate reform proposed by Brian Mulroney in 1987 was preferable to Stephen Harper's two Senate reform bills, which require provincial residents to elect candidates from which Ottawa would pick. The Meech agreement gave provincial governments the power to fill Senate vacancies as an interim measure toward larger reform. Appearing before a House of Commons committee studying the proposed changes, Mr. Pelletier said the Meech model would be more in line with the Senate's original mandate to represent provincial interests. All three parties in Quebec's National Assembly oppose the two federal Senate reform bills and want them scrapped immediately, he said. Failing that, Mr. Pelletier said Ottawa should at least clear up questions of the measures' constitutionality with a reference to the Supreme Court. As a last resort, Quebec will consider taking the issue before Canada's highest court. "It's an option we have to look at," he said, pointing out that Quebec would not have joined Confederation had it not been for the assurance of a strong Senate voice. "It's an institution that goes to the heart of the federal compromise of 1867," Mr. Pelletier told MPs. The government legislation, known as Bill C-20, spells out a system in which elections would be held in each province to produce a list of names for the federal government to choose from in appointing senators to fill vacancies. It is separate from a second Conservative bill, C-19, which seeks to replace the current system where senators are appointed with term limits of eight years. Quebec's presentation in Ottawa on Senate changes took place the same week the province slammed the Harper government over its policies on climate change. Quebec Premier Jean Charest and Ontario Premier Dalton McGuinty announced they would be going it alone with a cap-and-trade system aimed at reducing greenhouse-gas emissions. The increasing polarization between Central Canada and the federal government is in contrast to recent developments in Western Canada. Premier Brad Wall's new conservative-minded Saskatchewan Party government recently said it hopes to introduce legislation this fall that would allow for provincial elections of Saskatchewan senators. The process would be similar to the one already in place in Alberta, which has already sent two elected senators to Ottawa. The NDP government in Manitoba is also moving in that direction, with plans to hold provincewide hearings to consult residents on how to elect senators. British Columbia Premier Gordon Campbell has said he'd prefer to see the Senate abolished, but could support Senate elections provided Ottawa pays for them. The one elected Alberta senator who is still in the second chamber, Bert Brown, has been touring provincial and territorial capitals to get others onside. Mr. Pelletier later told reporters that even if the Conservative bills go nowhere, Quebec's concerns could materialize if many other provinces start holding their own Senate elections to produce names from which the Prime Minister would choose. "That would completely change the Senate and would confirm our point," he said. "This reform is so important that it should follow the formal rules of the Constitution." http://www.theglobeandmail.com/servlet/story/RTGAM.20080605.wsenate05/BNStory/National/home