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Sunday, July 10, 2011
NewsBusters' Sheppard Ignores Economic Chaos Resulting From Failure to Raise Debt Limit
Topic: NewsBusters

Noel Sheppard writes in a July 5 NewsBusters post:

If you believe every word uttered by hysterical news anchors and political commentators lately, you would think the world ends August 2nd if the debt ceiling isn't raised.

Not only isn't this true, it's another indication of the press's total ignorance about our nation's budget and/or their willingness to lie to the American people in order to get taxes raised.

[...]

Consider that last August, we brought in $164 billion in receipts. As it should be equal to or greater than that this year, we will easily afford the roughly $35 billion of interest expense without raising the debt ceiling.

Our monthly Social Security and Medicare outlays in May were $51 billion. Assuming they're close to the same in August, we'd still be left with $78 billion to pay military members, and a variety of other things.

Will we have enough to meet all of our obligations?

Certainly not. Like what's happened in the past, many government employees and contractors would be given IOUs.

BUT, unlike what the Obama-loving media are telling people, we won't have to default on our debt, we won't have to forego payments to America's seniors, and we won't have to hold back the salaries of our military members in the field.

But Sheppard, in suggesting that there would be no consequences to handing out IOUs to people or to not paying, has chosen to ignore the consequences of doing so even if interest payments on the debt and other obligations continue to be paid. As Media Matters details:

  • Those IOUs Sheppard would so blithely hand out would come as part of an immediate 44 percent decrease in government spending -- a number that constitutes 10 percent of GDP.
  • A Standard & Poor's expert states that such a contraction of federal spending "would have a very sharp negative fiscal impulse to the economy, and that would be disruptive."
  • The global rating agency Fitch Ratings states that "Widespread and prolonged delay to suppliers of goods and services, including salary payments to federal employees, would damage perceptions of US sovereign creditworthiness," adding "extensive payment delays on other obligations would confirm that the US government was in severe financial distress and that a failure to make payments on rated Treasury securities (bills, notes and bonds) was potentially imminent. If it had not already done so, in such circumstances Fitch would place its sovereign rating of the US on RWN [Rating Watch Negative]."
  • Former U.S. Comptroller General David Walker said that the last time the U.S. delayed making some payments, interest rates went up, meaning that interest on the debt would become more costly.
  • Banking firm UBS points out that not only would there be a likely "sharp increase in interest rates" from failure to raise the debt ceiling, it would also keep the U.S. from paying interest on Treasury bills that have matured, an issue because investors are less likely to roll over their T-bills under such unstable conditions.

So who's expressing "total ignorance about our nation's budget" here? Looks like Sheppard is.


Posted by Terry K. at 10:16 AM EDT
Updated: Sunday, July 10, 2011 10:41 AM EDT

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