RNC Chairman Rewrites Moody's Report

July 14, 2011 10:44 am ET — Alan Pyke

Twitter is a useful forum where creative minds can convey even the biggest ideas in small nuggets, but RNC Chairman Reince Priebus demonstrates this morning that 140 characters can just as easily deceive as illuminate.

By not providing a link to "yesterday's Moody's report," Priebus is encouraging followers to believe his version of events without checking for themselves. Which makes sense, because the very first sentence from the "RATIONALE FOR REVIEW" section of the report makes it clear that Moody's is putting America's reputation on review for a possible downgrade because of the GOP's refusal to raise the debt ceiling, and not because of spending levels:


The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default.

Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate.

As with previous Moody's and S&P warnings about our AAA rating, the finance business is concerned about a political failure to pay our debts on time. The debt-to-GDP ratio is a background character in these warnings, not the protagonist Priebus pretends it is. Yesterday's report includes one sentence near the end saying that an ideal budget agreement "should include a deficit trajectory that leads to stabilization and then decline in the ratios of federal government debt to GDP and debt to revenue beginning within the next few years." The rest of the report is a warning against the GOP's intransigence in the face of a default crisis.

That's inconvenient for Priebus, but it's nothing 140 characters of misdirection can't cure.