Moody’s Disputes Warnings about Shutdown and Debt Ceiling

As administration and media warn of economic doom, Moody’s says US credit rating safe.

Since the government shut down on Oct. 1, the Obama administration and many in the news media have hyped its danger to the economy and the financial markets. Obama himself told Wall Street to be concerned. But a prominent credit ratings agency disagreed.

Forbes reported that Moody’s released a report saying that the US credit score won’t actually be hurt by the shutdown or crossing the debt ceiling deadline of Oct. 17. Moody’s is one of the companies that issues the US credit rating.

According to Moody’s, “The shutdown has no effect on the government’s ability to pay interest and principal on its debt obligations, and therefore does not directly affect the government’s creditworthiness.” They also said that because they think the US would continue payments, even if the debt ceiling isn’t increased Oct. 17.

Moody’s President and CEO Raymond McDaniel told CNBC on Oct. 7 that it was “extremely unlikely” that we would reach the debt ceiling, but that “even if that does happen, then we think that the U.S. Treasury is still going to pay on its treasury securities, and prioritize those payments.” McDaniel argued that the fact that we faced a similar crisis in 2011 would “give people more of a sense of calm than perhaps they should have. Perhaps less of a sense of urgency.”

Obama’s Treasury Secretary Jack Lew has said exactly the opposite, and the media have been echoing that Democratic Party line. According to Lew, reaching Oct. 17 without raising the debt ceiling would be “catastrophic,” and create “a real risk of a financial crisis and recession that would echo the events of 2008 or worse.”

Correspondent Bill Plante on CBS “This Morning” on Oct. 4 warned“In 2011, even the threat of a possible default wreaked havoc on the markets and led to Standard & Poor’s downgrading the country’s credit rating.” S&P did downgrade the US in 2011, but Moody’s left the US’s credit rating at AAA at the time.

The media have issued plenty of warnings about the economic impact of the shutdown and debt ceiling deadline. On Oct. 2, CBS “This Morning,” Correspondent Major Garrett said that hitting the debt ceiling could cause a default that economists believe “could lower the United States’ credit rating, create a sell-off on Wall Street and quite possibly lead employers who have just begun hiring to tighten their belts.”

CNN Business Correspondent Alison Kosik warned of an economic apocalypse. On “The Lead with Jake Tapper” Oct. 8 she said the debt ceiling was worrying Wall Street, and that it could have extreme results.

“If a default happens, there’s one analyst who says that the S&P 500 could drop 45 percent. That’s astounding,” Kosik said.

The media have also turned to one of their favorite economists: Mark Zandi. Zandi is the chief economist at Moody’s Analytics. Moody’s Corporation owns both Moody’s Investor Service, which issues credit ratings, and Moody’s Analytics. But unlike the Moody’s report, Zandi had nothing but gloom for CBS “Evening News.”

Although Zandi was an economic adviser for Republican Sen. John McCain’s failed presidential bid, he is a registered Democrat, and tends to side with Democrats on fiscal issues. Because of this, liberals, including Speaker of the House Nancy Pelosi, D-Calif., use his name for “bipartisan” cover.  

“My policy is I will help any policymaker who asks, whether they be a Republican or a Democrat,’ Zandi has said. He refused to say whether he voted for McCain or Barack Obama. “My wife would also like to know the answer to that question,’ he noted. Asked this week about his relationship with Zandi, McCain deflected with a clipped ‘I had many advisers.’”

Media reports have often repeated Zandi’s claims that government spending – in whatever way – is better for the economy than supply-side tax cuts.

This isn’t the first time Zandi has sided with Obama on economic issues. Obama's $862 billion stimulus was a huge success according to Zandi. In an interview with CBS “Early Show” co-host Erica Hill in August 2010, Zandi asserted that "the recession ended about a year ago, in large part because of the stimulus efforts," and the current sluggishness was because "the stimulus is now fading," and thus "the benefit to growth is winding down."

Of course, Zandi has been a consistent supporter of stimulus, going as far back as early 2009. "We need stimulus," Zandi said on the Jan. 28, 2009, “Early Show.” "It's about preserving jobs." In 2008, Zandi predicted that without a stimulus package, unemployment would hit ten percent. Despite Zandi’s predictions, the unemployment rate actually briefly hit 10.2 percent (the number was later adjusted down), after the stimulus.

After President Obama signed the massive spending bill, Zandi was back on the Feb. 18, 2009, “Early Show” defending it. "It’s a reasonably good plan ... The fact that policymakers are working really hard here, I think, is a reason for some optimism."

— Mike Ciandella is Research Analyst at the Media Research Center. Follow Mike Ciandella on Twitter.