Wednesday, October 9, 2013

Moody’s busts Obama myth: “No direct connection between the debt limit and default”

Obama is the first President in history to oversee a downgrade of America’s credit rating, and if you remember, that downgrade came after Congress raised the debt ceiling the last time. This week Moody’s came out to dispel one of Obama’s top falsehoods about the debt limit.

from Washington Post:
In a memo being circulated on Capitol Hill Wednesday, Moody’s Investors Service offers “answers to frequently asked questions” about the government shutdown, now in its second week, and the federal debt limit. President Obama has said that, unless Congress acts to raise the $16.7 trillion limit by next Thursday, the nation will be at risk of default.
Not so, Moody’s says in the memo dated Oct. 7.
” We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,” the memo says. “The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default.
The memo offers a starkly different view of the consequences of congressional inaction on the debt limit than is held by the White House, many policymakers and other financial analysts. During a press conference at the White House Tuesday, Obama said missing the Oct. 17 deadline would invite “economic chaos.”
Read the Rest

Without a debt limit increase, the Federal government would still have enough money to service our current debt and fulfill obligations to Medicare, Medicaid, and Social Security.  The real risk of a credit downgrade or a default is caused by our long term debt (which currently sits around $17 Trillion), not from Obama’s legal ability to accrue more of it.

via  Poor Richard