Age Eighteen: Today Will End Three Days from Now
231. US credit rating
Credit ratings are scores assigned to people and organizations by independent agencies, meant to assess how likely they are to repay money that they borrow. For people, the most relevant factors are whether they have repaid their debts in the past, how long a history they have of successfully repaying debts, how much money they have borrowed, and their means of income. Someone who has a long history of taking on large debts and repaying them promptly will be assigned a higher credit rating than someone who only made a few purchases on a credit card and never paid the bill. The impact of a credit score is that it tells lenders, such as banks, how much of a risk they take by loaning money to someone. When a person has a low credit score, banks will tend to charge them higher interest rates to make up for the risk that the borrower may not make repayments. When averaging this over hundreds or thousands of borrowers, this ensures that the bank still makes money, even if some people fail to make their payments. On the other hand, a person with excellent credit is only a small risk, so banks offer them low interest rates.
When a whole country needs to borrow money, credit rating agencies look at some additional factors. They consider the political situation in the country, and estimate how likely it is that the government will spend the money responsibly. If a country runs up too much debt, it may default. A default is a partial or total failure to repay debt, and means that the lenders lose money. Another default risk is that a country will get a new government that refuses to pay the debts of the previous government. Lenders have to weigh all those factors in deciding on what terms to lend that country money if any.
Governments can borrow money in many ways, but the most common is by issuing bonds from their treasuries. Bonds are like IOUs, which promise that by a certain date the government will pay back the original price of the bond plus a certain percentage in interest. For countries with good credit ratings, they only need to offer a small interest rate to attract buyers for the bonds. But as a country’s credit rating goes down, it needs to pay a much higher rate of interest to be able to borrow the money it needs.
The United States has historically had an excellent credit rating, which means that when the US Treasury issues bonds, it can offer a very low interest rate. Thus, America can borrow money inexpensively. This is because investors around the world see America as the safest place to put their money. For many years, the risk of default was considered almost zero. Thus, US treasury bonds have been the go-to investment for individuals, organizations, and countries focused on keeping their assets absolutely secure rather than taking risks to grow them.
There are three main credit rating agencies: Moody’s, Fitch, and Standard & Poor’s. In 2011, Standard & Poor’s decided that there was so much political bickering on issues of spending and budget deficits and a growing national debt that America’s risk of default was increasing. In August, Congress voted to pass a controversial deal to raise the debt ceiling, which is the self-imposed limit on how much debt the US government can owe at any one time. The immediate increase was $400 billion, with provisions for further increases later. In response, Standard & Poor’s downgraded the US credit rating one notch, from a perfect AAA to AA+. Ironically, although this would normally force a country to offer more interest on its treasury bonds, the global economic uncertainty caused by the credit downgrade made stocks riskier, which caused investors to buy even more US Treasury bonds as a way of keeping their assets safe. As a result, the US could actually borrow at slightly lower rates of interest after the credit downgrade than before.
In the alternative reality of Danielle: Chronicles of a Superheroine, during Danielle’s fourth year as president of China, there is a major struggle in the US Congress about tax policy and spending. The uncertainty caused by this struggle frightens investors, and puts America’s already-downgraded credit in danger of slipping further. In response, the eighteen-year-old Danielle flies to America to act as a mediator between the two parties. After leading a marathon negotiating session with both houses of Congress, she manages to achieve a deal that cuts expenses yet promotes economic growth, and doesn’t raise tax rates but improves tax revenue by closing loopholes. The plan involves compromises, but a majority of the legislators realize that it is the most sensible plan possible. Danielle quickly writes a bill to turn the plan into law, and it passes successfully. This positions Danielle to subsequently run for president of the United States even though she is only nineteen years old and therefore requires a special constitutional amendment to allow her to run.
See entries for Bond offer, Sovereign funds, and Joint Session of Congress.
232. Joint session of Congress
The United States Congress has two chambers, or houses. The lower house is the House of Representatives, which has 435 members, with each one representing approximately the same number of people (around 700,000). The upper house is the Senate, which has 100 members, with two representing each of the 50 states. According to the design of the US Constitution, the House of Representatives is meant to be more responsive to the people, so its members only serve for two-year terms, and are in charge of taxes and spending. By contrast, the Senate is designed to be more thoughtful and deliberative, acting to counterbalance the House’s tendency toward waves of strong opinion and emotion. Thus, Senators serve for six-year terms, and take the lead role in foreign affairs and oversight of the president. Usually, the two houses of Congress meet and conduct their business separately, in chambers on opposite sides of the US Capitol building. In some cases, though, both Representatives and Senators come together (in the larger House of Representatives chamber) for an important event or to listen to a major speech.
Both houses of Congress meet in joint session for the counting of votes from the Electoral College, which is one of the technicalities of the process of electing a US president. But the most common joint sessions happen when the president gives an annual address to Congress and the American people called the State of the Union. In these speeches, the president reflects on events of the past year, and outlines their vision for the future.
On rare occasions, and as a major honor, foreign leaders or outstanding Americans may be invited to address a joint session of Congress. Presidents and prime ministers of other countries use these speeches as a way to communicate directly with American leaders, and to offer a message about their hopes for relations between their nation and the United States. Sometimes, these addresses come from leaders who are respected humanitarians, such as Nelson Mandela from South Africa and Lech Wałęsa from Poland. Winston Churchill spoke to a joint session of Congress in 1941 in the midst of World War II. General of the Army Douglas MacArthur also gave his famous farewell address to a joint session of Congress in 1951 after he was fired by President Harry Truman for insubordination. Pope Francis of the Roman Catholic Church gave a very well received speech to Congress in 2015.
In the alternative reality of Danielle: Chronicles of a Superheroine, during her fourth year as president of China, the eighteen-year-old Danielle flies to the United States to act as a mediator between Republicans and Democrats. Addressing a joint session of Congress, she helps them negotiate to resolve a bitter dispute over taxation and spending, and successfully gets them to pass a bill that avoids America receiving another credit rating downgrade.
See entries for Nelson Mandela, Winston Churchill, and President Obama.