CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Washington Post News Section Joins With Republicans In Minimizing Impact of Debt Ceiling

Washington Post News Section Joins With Republicans In Minimizing Impact of Debt Ceiling

Thursday, 10 October 2013 05:05

According to polling data the Republicans are taking a beating over their decision to shutdown the government and risk default on the debt to stop Obamacare. The Washington Post decided to help them out. Using their new journalism model, where there is no distinction between news and editorial views, they used the news section for this purpose.

In a front page article in the implications of missing the debt ceiling, the Post discussed a report from Moody's which argued that the government could structure its payments so that the debt is serviced and there is no default. It therefore reasoned that the impact on financial markets would be limited. The piece discussed this assessment and then told readers:

"The memo offered a starkly different view of the consequences of breaching the debt limit than is held by the White House, many policymakers and other financial analysts. Over the weekend, economists at Goldman Sachs said the economy would take a devastating hit even if Treasury kept making payments on the debt, because the pullback in federal spending would amount to roughly $175 billion, or 4.2 percentage points of gross domestic product."

Actually Moody's view (as described in the Post piece) is not a "starkly different view." Moody's report focused on the financial market implications. It did not discuss (at least by the Post's account -- I couldn't find the memo), the macroeconomic effects of the cuts discussed by Goldman Sachs and other economists.

It would be striking if analysts at Moody's really did have a "starkly different view" of the economy than almost all the other analysts who follow it. However the Post did not actually produce any evidence that this is the case. It just misled readers by implying that the huge macroeconomic hit from sharp cutbacks in spending is a debatable point, as opposed to something like the shape of the earth, which serious people do not waste time disputing. 

Comments (8)Add Comment
Uncle Sam Makes Call to Suicide Hot Line, Gets Rejected
written by Last Mover, October 10, 2013 6:18

Hello, this is Uncle Sam. I'm calling about my FICO score. It just keeps going up no matter what I do.

Everytime I spend more it goes up because of growth that closes the output gap and reduces long term debt. But everytime I spend less it goes up too because austerity is rewarded for reducing debt by paying it down.

Recently I decided to stop spending and making debt payments altogether and it still went up because they said the debt could just be restructured and still serviced.

I am very depressed and trying to commit financial suicide and my FICO score won't let me do it. Isn't there some way to score me like an average citizen of the middle and lower class who is underwater in every way imaginable?

The least you could do is treat me like economic poison the same way you did the private financial sector after the financial crash, after holding it up so high with those fraudulent pumped up FICO scores during the bubble.

After all, I am the government you know.
One other unacknowledged issue
written by Ryan, October 10, 2013 7:12
There is something that bothers me about the line of argument that we can prioritize and survive on cash flow. Isn't it conceivable (particularly following a 4.2% of GDP pullback) that cash flow might not be enough to cover even the debt service payments? After all, I am unfamiliar with this process, but it seems to me that if I was Treasury,

a) I wouldn't issue debt every day, maybe every Monday or Friday, and

b) I can't expect the average cash flow to come in every day. If I receive more than needed to service debt, am I supposed to clear what I can on the backlog of claims, or save it in case I need to service more debt on a low cash flow day?

c) Finally, If I save it for a low cash flow day, how long can I expect to do this until Congress decides I'm also supposed to pay for whichever group called Congress the most yesterday?

This is simply ridiculous, and I can't believe the prioritization argument is actually widely bought by the public.
note from the public
written by Dean Kisling, October 10, 2013 8:00
As the public, I can say that I understand very little of this. In defense of my lack of comprehension, I might say that much of this sounds like an imaginary game that, while it effects everyone, is only played by governments and financial mobsters, who treat money like it is actual wealth instead of a convenient medium of exchange that is backed by real-world goods and services. And furthermore, in my lack of comprehension, I think that this whole house of cards is bound to collapse one way or another, because it is imaginary and not based on the realities of human needs, human production, and human trade. And even furthermore, in my ignorance, I suppose that the only way out of this mess is for large numbers of people to stop being enablers of this imaginary game, and return to the production and trade of goods and services that have real human value. How stupid am I?
written by skeptonomist, October 10, 2013 9:03
The big excitment about the "memo" seems to be referring to last week's routine Credit Outlook (Oct. 7), which you can get at moodys.com - if you sign up (which is free). There is really nothing new in it - Moody's just believes, like Republicans, that interest payments would be prioritized.

Markets are starting to price in the possibility of a temporary default, which is why 1-month T-bill yields have gone up but not those of long-term bonds. A permanent default is a different matter.

written by Matt, October 10, 2013 2:49
The republicans predict doom and gloom because our deficit is too large and we don't want to pass that debt off to our children. But, they have no problem saying that we don't need to pay off the debt now. Another one of the republican's twisted arguments. Of course, they have no problem now, because their real aim is this -- shrink the government. If we pay off the debt now, we can't pay for the government to do its business. It is a tradeoff the republicans are happy to make.
written by watermelonpunch, October 10, 2013 3:19
written by Ryan, October 10, 2013 7:12
This is simply ridiculous, and I can't believe the prioritization argument is actually widely bought by the public.

Someone tell me if I've got this right...

The prioritization idea is ridiculous.

But it's easily sold to a bulk of the public who is sold on the idea that a government's finances works exactly like their individual household finances operate.
written by StJuste, October 10, 2013 7:26
an economist
written by Jack Q. Public, October 10, 2013 11:29
I say if the Treasury has to pick the bills to pay the first to be ignored should be the principal and interest on any bonds owed to the Koch brothers, Goldman Sachs, or Pete Peterson.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.