In a debt ceiling memo making the rounds in Washington today, Moody’s credit rating agency destroys President Obama’s rationale for raising the debt ceiling. The nation reaches that ceiling on October 17, and President Obama has repeatedly said that if Republicans do not agree to raise the ceiling, the nation will default, damaging our credit rating and sending the economy back into recession. Obama says “economic chaos” would result from a failure to raise the debt ceiling, which he wants done without any spending cuts attached.
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.
Moody’s memo puts the default ball squarely in President Obama’s court. He has the power to prioritize spending, and could choose not to make interest payments on the national debt — but that would be his choice, not Congress’.
As a senator, Obama strongly opposed raising the debt ceiling in 2006.