Agriculture and other sectors face possible dramatic new financial challenges as the U.S. gets another warning it could soon lose its triple-A bond rating, and with it cheap borrowing costs.
Democrats and Republicans have been far apart on a deal to raise the debt limit and make offsetting budget cuts after efforts to pass a clean debt limit bill with no cuts failed in the House last week. That's raised the ire of bond rating services Moody's and Standard and Poor's, which both now warn that without progress by mid-July, they'll take steps toward downgrading U.S. debt.
Moody's says even a partial U.S. default without action by Aug. 2 will mean higher U.S. borrowing costs. American Farm Bureau Public Policy Director Mark Maslyn says that will raise the cost of doing business for everyone.
"Even with all the proposals on the table the debt is still going to be increased," Maslyn said. "If we don't address this as a country, as a nation in a bipartisan way, in a serious way the marketplace is going to deal with it. And we'll pay higher interest rates in order to get people to buy our debt and that's something that affects agriculture every day of the year."
The latest warning by Moody's heightens pressure on the Hill and White House to make a deal, although both sides stubbornly refuse to compromise on key tax and spending issues, like Medicare. But Farm Bureau Tax Specialist Pat Wolff says at some point, there will have to be a vote.
"The vote on the debt ceiling will be coupled with cuts in spending and maybe increases in taxes," Wolff said. "Those will be big picture numbers, agreeing to certain spending caps, but the details come in the appropriations bills."
Agriculture has already seen some $6 billion in fiscal year 2012 cuts in its House spending bill that was just reported from Committee, and the big picture numbers in a bill to raise the debt ceiling will determine what's available to write a new Farm Bill.
"There is a threshold that is a certain amount of money that is necessary, but it depends on what you write, how you write it, what kind of policies you write," Maslyn said. "We've been telling our folks that you can't have the same Farm Bill that you have right now, there's not enough money to write it."
Maslyn concludes farm policymakers must now think fresh on the federal government's role in providing a safety net for agriculture.