“Default” Not the Boogeyman D.C. Claims

In Washington, the battle over the CR and the debt ceiling has taken a new urgency with leaders in both parties wanting to avoid the alleged threat of default if the debt ceiling isn’t raised. A new report this week, however, proves the lie to that threat. Either both parties are misleading the American people or are ignorant about the debt ceiling’s reality.

From The Washington Post, with emphasis added:

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.

Tea Party Patriots has been making this argument for months, as has Senator Tom Coburn (R-OK). Now financial experts are adding their voices to the debate. Hopefully this information will stop Beltway Elites from using the word “default” to scare the American people.

The Moody’s memo is not a call for Congress to ignore its responsibilities. Hitting the debt ceiling would force a prioritization of spending, which would balance the budget, but could easily have short-term negative consequences on the nation’s economy. Congress is long overdue on making meaningful spending cuts, and even the smallest exercise of fiscal responsibility can render the establishment cry of “default” a moot argument.

How Congress makes the cuts necessary to avoid the debt ceiling is up to policymakers, not Moody’s. This memo should help keep the debate on honest grounds, and avoid “sky is falling” scenarios the political opportunists in Washington keep describing.