Conn Carroll – Morning Examiner
President Obama, Treasury Secretary Jack Lew, Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi have described the consequences of the U.S. defaulting in the wake of a congressional refusal to authorize a hike in the debt ceiling as “catastrophic.”
The scenario these worthies paint certainly looks catastrophic: Wall Street collapses, world markets are crippled, U.S. prestige abroad suffers irreparable damage and the American economy plunges into a repeat of the Great Recession of 2008.
Nobody in their right mind wants to go there. Ergo, Obama, Lew, Reid and Pelosi argue that House Republicans are irresponsible to attach conditions — lower federal spending, Obamacare individual mandate delay, etc. — on the debt ceiling hike that must be approved no later than Oct. 17.
Along came Moody’s
Then, out of nowhere, a memorandum by Moody’s, one of the three leading credit rating agencies, became public Wednesday, saying (according to the Washington Post):
“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 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 other words, if Moody’s is to be believed, rather than the catastrophe predicted by the politicos, failing to raise the debt limit would be more akin to an accounting inconvenience for the green-eyeshades in the bowels of the Treasury Department.
So, what now?
Sen. Tom Coburn even went so far as to point out that, as a practical matter, the debt ceiling crisis is essentially a useful fiction employed by Washington politicians to avoid taking the painful steps necessary to control their spending.
“The debt ceiling has never not been raised, so there is no debt ceiling,” the Oklahoma Republican said on CNN. “And by having a debt ceiling and then raising it every time, it allows the politicians off the hook for making the hard choices.”
The Moody’s memo marks the third time Obama’s warnings of impending fiscal doom have proven empty. First, it was sequestration that would allegedly put the economy into a tailspin. That didn’t happen, but White House public tours were cancelled.
Then it was a government shutdown that would summon the Four Horsemen of the Apocalypse. Yet somehow, 83 percent of the government remains open. Now Moody’s debunks the debt-ceiling catastrophe.
Stripped of pretense
Obama meets with 18 congressional Republicans Thursday, a gathering he will enter bereft of his main leverage tool, thanks to Moody’s.
Similarly, the GOPers are clearly desperate to grasp something, anything, to justify caving, so their leverage, in their own minds at least, is also fading rapidly.
Perhaps now, having been stripped of all pretense, these 19 worthies will get real, start bargaining sensibly, and emerge with some sort of agreement. Don’t get your hopes up.
