According to the administration of Barack Obama, we are eight days away from the apocalypse. Unless the federal government agrees to a massive increase in its borrowing capacity, the sky will most assuredly fall.
Fire. Brimstone. Bowls outpouring. Bowel-shaking earthquakes.
Just this week, Obama said America was headed toward “economic chaos” and “a very deep recession” if the federal government didn’t immediately agree to take on more debt. This is ostensibly why Obama is refusing to negotiate (i.e. refusing to trade spending cuts for an increase in the debt limit) – even though his GOP “opponents” are basically surrendering on all fronts.
But is the sky really going to fall on October 17? Is the federal government really default?
Not according to one of the nation’s top credit-rating agencies.
Moody’s says in a new memo that “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.”
Wait … what about all that “historic default” mumbo-jumbo?
“The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt,” the memo continues. “There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default.”
In other words if the government (gasp) found stuff to cut, it wouldn’t have to compromise the “full faith and credit of the United States” (to the extent people can still say that with a straight face).
In fact Moody’s contends the 2013 debt ceiling crisis is actually less serious than the 2011 debate … which spawned the infamous “debt dereliction deal,” a $2.4 trillion debt limit hike (which the government blew through in seventeen months) in exchange for the promise of $2.1 trillion in spending cuts over the coming ten years.
“The budget deficit was considerably larger in 2011 than it is currently, so the magnitude of the necessary spending cuts needed after 17 October is lower now than it was then,” the memo states.
Far be it from us to downplay the seriousness of the debt limit situation. In fact we’ve “up-played” it … while at the same time rebuking the “Republican” leadership for their proposed compromise.
But if October 17 comes and goes without a debt deal, it won’t mean a default … it would only mean government could spend no more than it took in.
Imagine that …