To: RMF who wrote (55101 ) 10/11/2013 11:27:24 AM From: Brumar89 1 RecommendationRecommended By
Read Replies (1) | Respond to Moody’s on Debt Limit: Calling Obama’s Bluff on DefaultRomina Boccia 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 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.” In recent weeks, President Obama and Treasury Secretary Jack Lew have made the rounds, arguing vociferously that if Congress does not raise the debt limit by October 17, the U.S. could default and “economic chaos” would ensue. The Treasury Department put out an entire report on the damaging consequences of a government default. The President even went so far as to call it an “ economic shutdown ” and began scaring seniors , suggesting that their Social Security benefit checks wouldn’t arrive on time.Unless President Obama deliberately chose to default, at least three reasons why the U.S. will not default on its debt:1. Revenues. Treasury will collect more than enough revenue in fiscal year 2014 to meet all debt obligations and most non-debt obligations on an annualized basis. Interest payments consume less than 10 percent of revenues, and even if interest rates rose, the U.S. would still be able to service its debt. 2. Prioritization: The Treasury and President Obama have discretion at the debt limit to prioritize payments in the best interest of the nation . Treasury could hold some cash reserves to ensure debt obligations are met on time, prioritizing debt payment above all other spending. Some non-debt payments would be delayed during a debt limit impasse.3. “Assets.” Nearly one-third of the federal debt subject to the limit consists of intragovernmental debt, or debt which federal agencies have incurred amongst themselves. Redeeming bonds in government trust funds frees up room under the debt limit to borrow additional cash to meet obligations. The Full Faith and Credit Act, H.R. 807 , which passed in the House of Representatives, would allow the Treasury to borrow funds as necessary to meet debt obligations .The debt limit presents a decisive moment for Congress to take charge of the automatic spending increases that are driving the U.S. spending and debt crisis. Congress should cut spending and reform mandatory programs to put the budget on a path to balance before increasing the debt limit.blog.heritage.org Full Faith and Credit Act is essentially an insurance policy against miscalculation. Their bill certifies that U.S. sovereign debt will always be repaid, on time and in full. the bill stipulates that Treasury can continue making contractual interest and principal payments to bond holders and rolling over debt with incoming tax payments. Debt service gets the first call on revenue. replicates the guarantees that state constitutions have had for hundreds of years to strengthen investor confidence. It gives the Treasury Secretary discretion to prioritize among other federal obligations until the political deadlock ends, tempers cool and the parties can reach a deal. But it makes his first priority to protect the full faith and credit of the U.S.instead of embracing this insurance against default, Democrats have voted to kill it The White House issued a formal veto threat Reid moved to strip it out, and his motion passed the Senate 54 to 44. The Majority Leader denounced McClintock-Toomey as the "Pay China First Act." A President who really wants to limit the chance of default would take the GOP up on its Full Faith and Credit offer. Mr. Obama's refusal suggests that his real goal is to go to the edge of default, gambling that he can then either coerce total surrender or blame a default on Republicans and use it to take back control of the House in 2014. This isn't how leaders looking out for the interests of all Americans behave.online.wsj.com
