Moody’s on Debt Limit: Calling Obama’s Bluff on Default

A voice of reason emerged today among the doomsday predictions over a U.S. government default if the debt limit is not raised by mid-October. The Washington Post reports that Moody’s, a top credit rating service, suggested that hitting the debt limit does not mean the U.S. would default:

“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.”

In recent weeks, President Obama and Treasury Secretary Jack Lew have made the rounds, arguing vociferously that if Congress does not raise the debt limit by October 17, the U.S. could default and “economic chaos” would ensue. The Treasury Department put out an entire report on the damaging consequences of a government default. The President even went so far as to call it an “economic shutdown” and began scaring seniors, suggesting that their Social Security benefit checks wouldn’t arrive on time.

Via: The Foundry

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