When Standard & Poor's "dropped our credit rating, what they said is, we don't have an ability to repay our debt. ... I was proved right in my position" that the debt ceiling should not have been raised.
Michele Bachmann on Thursday, August 11th, 2011 in a debate in Ames, Iowa
Bachmann said Standard & Poor's downgrade proved she was right
If you made a list of House Republicans who were the biggest opponents of raising the debt ceiling, Michele Bachmann would be near the top.
Bachmann, R-Minn., and a Republican candidate for president, said consistently that she would not vote for an increase in the debt ceiling -- the legal limit on how much money the government can borrow -- regardless of the terms of the deal.
She repeated her opposition at a Republican debate in Ames, Iowa, on Aug. 11, 2011, when asked if she was concerned about the United States defaulting and not paying its debts.
"If you had your way, the debt ceiling would not have been raised," said Susan Ferrechio, a debate moderator. "What do you say to analysts who insist that Americans' investments, their 401(k)s, their college funds would have been far worse off today?"
"I think we just heard from Standard & Poor's," Bachmann said. "When they dropped our credit rating, what they said is, we don't have an ability to repay our debt. That's what the final word was from them. I was proved right in my position. We should not have raised the debt ceiling. And instead, we should have cut government spending, which was not done. And then we needed to get our spending priorities in order."
Is that what Standard & Poor's said? And did the report support her position that the debt ceiling should not have been raised? Her statement was a disputed point in the post-debate analysis, so we decided to check it out for ourselves. (We should also note that her claim that the deal did not cut government spending is questionable at best. The nonpartisan Congressional Budget Office said that the deal would cut "at least $2.1 trillion" between 2012 and 2021.)
A little background: Standard & Poor's is a New York-based ratings agency that studies the financial markets. It issues guidance to investors and rates various investments for financial risk. On Aug. 5, it downgraded its credit rating for the United States one notch, from the top-rated AAA to AA+. (The other two ratings agencies, Moody's and Fitch, did not lower the U.S. rating.)
The Obama administration strongly objected to the ratings downgrade and disputed Standard & Poor's analysis. Others criticized the company for its performance in previous years, when it gave high ratings to mortgage securities that subsequently proved worthless.
The downgrade didn't seem to have much effect on investors' desire to hold U.S. Treasury bonds and other securities, which are still widely perceived as safe investments.
Bachmann said that when Standard & Poor's dropped the rating, "what they said is, we don't have an ability to repay our debt" and she said it supported her position that the ceiling should not have been raised and that spending should have simply been cut. Bachmann also opposed any type of tax increases, including closing loopholes, which Democrats supported.
To fact-check Bachmann, we read Standard & Poor's original report on why it issued its downgrade.
To put it in simple terms, Standard & Poor's had two main reasons for the downgrade: First, that the size of the U.S. debt is very large and growing, and second, that politicians seem unable to agree on what steps to take to reduce it. It called the political process "contentious and fitful," and said the firm was "pessimistic" that the White House and Congress would be able to agree on measures to significantly reduce the debt anytime soon.
"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy," the report said.
The report does not say that the debt ceiling should not have been raised. If anything, there's an unstated assumption that increasing the debt ceiling was necessary. "The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy," the report said.
And in an interview on Fox News, Standard & Poors' managing director John Chambers seemed to express disapproval that it took so long for Congress to raise the debt ceiling. He said President Barack Obama "characterized the political system as dysfunctional, I think that's a good word. We got to a position where we were within 10 hours of having a major cash flow problem. This is not what happens in other countries," Chambers said on Aug. 8.
Another official with Standard & Poor's, director Joydeep Mukherji, told POLITICO that the stability of American political institutions were undermined by the fact that "people in the political arena were even talking about a potential default." He didn't mention who those people were. "That a country even has such voices, albeit a minority, is something notable," he added. "This kind of rhetoric is not common amongst AAA sovereigns."
As to which political party was in the right, the ratings agency did not explicitly tip its hand. The report said it took no position on whether taxes should be raised or spending should be cut.
In the Fox News interview, Chambers was asked if the tea party movement was responsible for the downgrade as Democrats alleged. He declined to take the bait and assign blame.
"I think that there's lots of blame to go around, and what we need to come to in the United States is a way of forging consensus, so that we can take the tough choices that lie ahead, because the fiscal situation in the United States is not sustainable," he said.
Bachmann said that when Standard & Poor's "dropped our credit rating, what they said is, we don't have an ability to repay our debt. That's what the final word was from them. I was proved right in my position. I was proved right in my position."
In fact, because the debt ceiling was raised, the United States is paying its debts. What Standard & Poor's actually said was that politicians in Washington can't agree on long-term solutions for how to reduce the debt -- not that the country is or was unable to pay its debts. The notion that the report supported her position is wishful thinking. For that, we rate her statement False.
Published: Friday, August 12th, 2011 at 6:27 p.m.
Fox News, Republican candidates debate, Aug. 11, 2011, accessed via CQ Transcriptswire
PolitiFact, How bad would default be for U.S. creditworthiness?, July 16, 2011
Standard & Poor's, United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative, Aug. 5, 2011
Standard & Poor's, Rating Action on U.S. and Related Material, accessed Aug. 12, 2011
Fox News, interview with John Chambers of Standard & Poor's, Aug. 8, 2011
POLITICO, S&P: Debt default skeptics fueled ratings downgrade, Aug. 11, 2011
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