This is the Cato Daily Podcast for Tuesday, April 19th, 2011.

I'm Caleb Brown.

S&P has changed its posture on debt issued by the US Treasury.

U.S. debt hasn't been downgraded,

but it could be if lawmakers are unable to control

federal spending in the coming months and years.

Mark Calabria is director of the Cato Institute's Financial Regulation Studies, he comments.

Start with what S&P actually did, which was S&P did not downgrade the U.S.

In terms of short term, they reaffirmed the current.S. in terms of short term they reaffirmed the current

triple A rating but downgraded the long-term outlook and there are a variety of

potential outcomes to this one would be if there actually is a downgrade

eventually the likely scenario would be interest rates would go up on

treasuries and because treasuries tend to be the, the benchmark for interest rates to the rest of the economy, you would see interest rates on about everything.

Your credit card, your mortgage, whatever would go up from a U.S. downgrade.

And not based on a change in the relative confidence

of your ability to repay, but because contracts are written

in such a way.

They're almost all benchmark off the Treasury, you know, is the standard.

And it's quite common to see things priced in financial markets as a spread over Treasury.

So treasuries go up, you see these other costs go up as well, which of course makes borrowing more expensive,

you know, and also has a potentiality to press asset values if you, if these asset values are supported by borrowing.

So it could be a drag on the economy.

...