Moody’s On Default: NO-Bama There’s “No Connection” To Debt Limit

Moody’s rating agency, one of the top three credit-rating agencies in the nation, made comments in direct contradiction to Obama’s debt ceiling warnings, which claimed that the U.S. is in danger of default if Congress does not agree to raise the debt limit.

Moody’s said that even if Congress fails to lift the limit on borrowing next week the nation will not default, 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, which is now in its second week, and the controversy surrounding the debt ceiling and federal debt limit.

President Obama has repeatedly stated that unless Congress acts to raise the $16.7 trillion limit by next Thursday, then the nation will default and global financial armageddon will be upon us.

That is simply not the case, Moody’s said in the October 7 memo, which reads as follows:

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. 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 memo from Moody’s continues by stating that the situation is actually much less serious than in 2011, when the nation last faced another manufactured crisis 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 added.

Treasury Department officials did not respond to requests for comment made by the Washington Post.