Moody’s to Obama: Umm.. No, not raising the debt ceiling would not destroy the world

**Posted by Phineas

Obama loan officer at work
Obama debt adviser

Daring to contradict The One’s attempts to beat the House into submission by causing a panic? Moody’s is so going to get audited:

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 Moody’s memo goes on to argue that the situation is actually much less serious than in 2011, when the nation last faced a pitched battle over the debt limit.

The bolded portion is key: the United States Government takes in enough revenue to meet its financial obligations, and the Treasury Secretary has the authority to prioritize payments on the debt. It just stops the government from borrowing to cover its spending. As Dan Mitchell explains:

The White House wants people to believe genuine default is likely even though tax receipts this fiscal year are expected to be more than $3 trillion and interest on the debt is projected to be only $237 billion. In other words, the Treasury will collect more than 12 times as much revenue as needed to pay interest on the debt. Even someone like me, with my well-known views on the incompetence of the federal government, thinks that the Treasury Department will have no problem figuring out how to avoid default.

Remember that when the White House ramps up the scare tactics in the coming days. If the United States defaults, it will solely be by President Obama’s choice.

via Bryan Preston

(Crossposted at Public Secrets)

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