Credit rater sees no risk of US defaulting

A major credit rater expects the Treasury Department would avoid default if the $16.7 trillion debt limit were not raised.

In a document dated Oct. 7, Moody’s Investors Service said it believes that if the borrowing cap were not increased, the government would prioritize making interest and principal payments on its outstanding debt above other government bills, even though the Treasury Department has repeatedly called prioritization plans unworkable.

“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 rater said.

{mosads}Many Republicans are making a similar argument. Sen. Tom Coburn (R-Okla.) said Wednesday the debt ceiling doesn’t exist.

“The debt ceiling has never not been raised, so there is no debt ceiling. And by having a debt ceiling and then raising it every time, it allows the politicians off the hook for making the hard choices,” Coburn said Wednesday morning on CNN’s “New Day.”

Moody’s also argued the economic risks surrounding the debt limit are lower than during the last major fight on the issue in 2011 because lawmakers wouldn’t be looking for massive cuts to ease the deficit.

The memo, in which Moody’s answers a number of frequently asked questions about the shutdown and debt limit fights, comes as Republicans are increasingly casting doubts on warnings of economic catastrophe if the debt limit were not raised.

President Obama underlined those warnings in a press conference Tuesday.

“There’s no magic wand that allows us to wish
away the chaos that could result if, for the first time in our history,
we don’t pay our bills on time,” Obama said.

Republicans accused Wednesday Obama of scaremongering and urged him to stop making “misleading” remarks about the financial turmoil that would result if the borrowing cap were not raised.

While Moody’s expressed confidence that the government would continue making payments on its debt above all others, it did not weigh in on the economic implications of what could happen to the rest of the government’s obligations if the Treasury’s ability to raise funds were restricted.

Outside experts anticipate that the government could make it to Nov. 1 at the latest before it would begin having to stop paying certain bills without a debt-limit increase.

Moody’s currently rates U.S. debt as a top AAA rating and is not expecting to downgrade it in the immediate future.