One of the nation’s top credit-rating agencies says that the U.S.
Treasury Department is likely to continue paying interest on the
government’s debt even if Congress fails to lift the limit on borrowing
next week, preserving the nation’s sterling AAA credit rating.
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 memo offers a starkly different view of the consequences of
congressional inaction on the debt limit than is held by the White
House, many policymakers and other financial analysts. During a press
conference at the White House Tuesday, Obama said missing the Oct. 17
deadline would invite “economic chaos.”
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 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 says.
Treasury Department officials did not immediately respond to requests for comment.
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