Section: Opinion,  Page: A14

Date: Monday, January 17, 2011

The issue:

Wall Street is alarmed by too much government spending and borrowing.

The Stakes:

A top-notch credit rating might be lowered.

The warning came again last week, typically shrill and predictably dreary. The U.S. government spends too much money. It's much too deep in debt. To continue those fiscal practices, especially in tandem, is to flirt with disaster.

OK, nothing new there -- aside, that is, from the source of this latest alarm. It wasn't the tea party movement or the fiscally conservative members of Congress it's warmed up to, much as either camp couldn't help but nod and say it told us so.

This time, it was two of the major credit ratings agencies -- Moody's and Standard & Poors -- threatening to lower the federal government's credit rating.

Now, warning of the possibility of a diminished credit rating and actually making good on such a threat are two very different things.

And, such words of caution, and worse, from the likes of Moody's and Standard & Poors to state and local governments are commonplace. Wall Street is forever telling New York of the consequences of its huge ongoing deficits -- namely lower credit and bond ratings that will make it all the harder to borrow money. Sometimes state leaders even listen.

Those ratings tend to fluctuate at the municipal level, too. The region's mayors and other high-ranking officials are always touting their cities' successes in moving up a notch or two in the eyes of Wall Street.

It's different, and more critical, at the federal level. The U.S. government has had the highest possible credit rating for so long that it used to be unthinkable to imagine otherwise. Even a slight revision downward could badly rattle the financial market, and at a particularly bad time.

Yet here's the Obama administration, lobbying Congress to take the necessary short-term measure of increasing the nation's legal borrowing limit. The last time Congress resisted, in 1996, was the last time the credit ratings agencies took strong action against the government in response. It put some of the federal debt on review for a possible downgrade.

Both the White House and Congress can share the blame for the latest predicament. While the $826 billion tax cut extension deal reached last month -- heeding the demands of the political right, to the applause of the center but the despair of the left -- is expected to help stimulate the economy, it also denied a big-spending, heavy-borrowing government a source of sorely needed revenue. Best estimates are that extending the Bush-era tax cuts to everyone, even the richest 2 percent who don't need them, will cost between $700 billion to $1 trillion over the next decade.

Even as more short-term stimulus efforts might be necessary for the economy to really recover, Moody's and Standard & Poor's nonetheless expect the government to heed the recommendations of a federal commission to reduce the projected budget deficits over the next 10 years by some $4 trillion.

The other challenge will be to reduce government spending radically -- once, that is, sustained economic growth is restored.

The alternative, such as it is, is for the federal debt to soar out of control.

What will the warning from Wall Street sound like then?