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Moody’s: US Will Not Default on Aug 2 Even Without a Deal, White House Spin Machine Hardest Hit

John on July 29, 2011 at 2:37 pm

From the WSJ via Jake Sherman on Twitter, one of the administrations major talking points just went up in smoke:

Moody’s also offered a definition of “default” – which could be of some comfort to conservative lawmakers who have said that action on the debt ceiling isn’t strictly necessary by the Treasury’s Aug. 2 deadline.

“What would Moody’s consider a default? We do not consider delayed payments for obligations other than debt service to be a default.” In other words, President Barack Obama could make good on his warnings that Social Security checks wouldn’t go out, and that wouldn’t constitute a “default.”

So according to Moody’s there is no default so long as we pay our debt service. We have cash on hand to cover that for nearly a year. Perhaps the single individual helped most by this is Michelle Bachmann who has strongly argued that the doomsday scenarios presented by the White House were bogus.

The story also mentions some “ammunition” for Democrats:

Moody’s review will finish when the debt limit is extended “for more than a short period of time,” the company said. That line gives some ammunition to Democrats and President Barack Obama, who have said any debt deal should lift the borrowing cap through the end of 2012.

It’s not clear what “a short period of time” means. Does that mean a two week extension? Looking back over recent history we find that the average extension has been about 10 months. Hard to argue that is “short” if precedent is any gauge.

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Category: Energy & Economy, Politics |

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