Reality Default

Daniel J. Flynn is the author of numerous books, including "Blue Collar Intellectuals: When the Enlightened and the Everyman Elevated America," now available from ISI Books. Read Daniel's blog at www.flynnfiles.com.


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President Barack Obama announced Sunday night an agreement with Congress to raise the debt ceiling. So why are credit-rating agencies still considering downgrading the U.S.’s AAA-rating?

The president maintained in his address to the nation that the deal had averted a potentially disastrous situation in which the federal government would have been unable to service the interest on the national debt, thus degrading the nation’s credit rating and increasing the expense of future borrowing. His Sunday-night sermon styled the deal as “an agreement that will reduce the deficit and avoid default—a default that would have had a devastating effect on our economy.” In fact, he invoked the specter of “default” five times in the speech.

But with non-borrowed federal income for August exceeding $170 billion, and interest on the debt amounting to less than $30 billion for the month, there was never any danger of America’s creditors missing a payment for lack of funds. Moody’s acknowledged as much late last week. “If the debt limit is not raised before August 2, we believe that the Treasury would give priority to debt service payments and could thus postpone a potential debt default for a number of days,” the credit-rating agency said. “Revenues would be more than adequate for some period of time to meet those payments, although other outlays would be severely reduced as a result.”

While Moody’s is expected to maintain the U.S.’s AAA-rating, Standard and Poor’s is expected to downgrade it. The president insisted that if Congress didn’t raise the debt limit, America’s credit rating would be harmed. Congress appears to have done what the president wanted, but America’s credit may still be harmed. What gives?

The patently absurd but widely accepted claim made repeatedly by the president throughout the debt-limit negotiations is that not borrowing more would harm America’s credit. The claim is not only not true, but the opposite of the truth. Out-of-control borrowing, not curbs on more debt, is what has imperiled America’s standing in the eyes of lenders.

U.S. debt as a percentage of the gross domestic product stood at less than 60 percent just ten years ago. It now approaches 100 percent. In other words, it would take the amassed economic output of every American for about one year to pay off the debt.

What changed from 2001 to 2011? The federal government ran massive deficits to pay for new spending programs. Wars in Iraq and Afghanistan, the prescription drug plan, bailouts to the auto and financial sectors, a pricy stimulus package, an aging population driving up Medicare and Social Security expenses, increased debt-servicing costs, and a massive health-care subsidy perversely known as the “Affordable Care Act” have thrown spending levels out of balance. Federal spending as a percentage of GDP, under 20 percent just ten years ago, now exceeds 25 percent.

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  • Gamem

    The sad thing is it now becomes the Republican's fault also because they agreed to it.

  • StephenD

    Let's see, I'm running out of money to pay my credit cards, I should ask for an increase to my credit limit rather than curb my spending. After all, I still need to "provide for those less fortunate" (my family needs to eat and have shelter) and "these are debts we've already racked up (Electric bill, gas, water, etc.) so I MUST increase my borrowing capacity. Now then, that money I have earmarked to help that new guy in another state and the addition I want to make on the garage and oh yeah, don't forget my belief that I should spend more so those around me may find work in it….Does this makes sense to anyone? Pay for necessities but…
    STOP the out of control spending. Period!

  • LindaRivera

    SCARY……

    Is this REALLY our AMERICA??????

    Know the TRUTH about the Government Health Care Bill H.R.3200 – Key Points http://www.youtube.com/watch?v=HcBaSP31Be8

  • LindaRivera

    An inferior health care plan that no one wants and CANNOT afford to pay. The threat to jail and/or fine those who don't purchase the government enforced plan.

    Massive spending as if there is no tomorrow. Fighting wars we have no money for. Massive borrowing. The Massive giving away of Billions of dollars every year to other countries, including the oil-wealthy Middle East, Hamas-controlled Gaza and the Palestinian Authority organization who fill their war chests, build mansions and laugh all the way to the bank with free infidel money. Whilst in America, homeless shelters are filled to capacity; tent cities have sprung up all over the U.S. filled with desperate, jobless, homeless, NEGLECTED Americans.

    Massive debt. The massive printing of paper money out of thin air to DELIBERATELY create out-of-control inflation. There is no question that the total DESTRUCTION of America's economy is planned. The results will be horrifying. In the once wealthy and great nation of America, millions of Americans will become destitute, hungry and homeless with no money or resources to help them.

    • mlcblog

      and now those who disagree are being called terrorists!!

  • LindaRivera

    Organic, non-gmo avocado, fruit and nut trees and berries must be planted in all of our nation’s cities’ and towns’ parks to help the many millions of Americans who will soon be in a desperate struggle to survive.

    Watch it. And weep for our great nation and people:

    FALL Of The Republic – The Presidency Of Barack H Obama – The Full Movie HQ http://www.youtube.com/watch?v=F8LPNRI_6T8&fe

  • Amused

    And you can thank the partisan IDIOTS in Washington for it all . Raising the debt ceiling ,as Reagan did 18 times ,and Bush 7 times didn'tdo the damage , the game of russian roulette -thanks to the teabaggers has already damaged the stock market . Raising the debt ceiling with a plan to cut spending , a BI-PARTISAN PLAN , is NOT going to destroy America .However the attitudes and brinkmanship of these partisan schmucks just may do it . And while you're sitting on the streetcorner eating a can of dogfood , you can argue your partisan bullsheet .