Ron Paul’s inaccurate definition of ‘bankruptcy’

December 14, 2011

“The country is bankrupt, and nobody wanted to admit it. And when you’re bankrupt, you can’t keep spending.”

— Ron Paul, Aug. 11

Rep. Ron Paul, as a libertarian Republican, often stands apart from his fellow presidential candidates with his very defined worldview. The Texas congressman opposes foreign military intervention, sees little need for foreign aid and worries deeply about the power of the Federal Reserve. It’s hard to fact-check opinions, but the facts he deploys to back them up are sometimes wanting.

The statement above, for instance, is incorrect. “Bankrupt” is a distinct term, generally meaning that a person, company or state is unable to pay its debts.

Under no definition is the United States bankrupt. The nation has a large debt as a percentage of its economy, and that is a concern. According to the Treasury Department’s debt calculator, the debt held by the public is about $10.4 trillion, which is about 68 percent of the gross domestic product, the market value of the nation’s output of goods and services.

The United States also owes $4.6 trillion to itself. That consists mostly of securities held in the Social Security and Medicare trust funds. Eventually these securities will be redeemed and must be paid through government revenue or the issuance of new debt.

Some people (such as Paul) prefer to look at this “gross debt” total, in which case the ratio of debt to GDP is much higher: 99 percent.

But in any case, the United States is able to pay its debts, and its bonds are still regarded as the gold standard in the financial markets — a reason investors have flocked to buy U.S. Treasurys during the market turmoil caused by the European debt crisis.

Paul made his remark shortly after Standard & Poor’s downgraded the credit rating on U.S. Treasury securities from AAA to AA+. Moody’s and Fitch each kept the U.S. debt at their highest ratings — and even S&P’s slightly lower rating means that the United States is considered to have a “very strong capacity to meet its financial commitments.”

The Standard & Poor’s report explaining its decision made it clear that it was acting not out of concern about the nation’s ability to pay its debts but mainly because the political environment in Washington had become too toxic to take meaningful steps to reduce the debt burden — especially “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

So, in the opinion of a bond rating agency, Paul’s anti-tax stance is directly related to the nation’s financial straits, which he exaggerates with his rhetoric about bankruptcy.

The Fact Checker awards four Pinocchios for this statement.

Glenn Kessler has reported on domestic and foreign policy for more than three decades. He would like your help in keeping an eye on public figures. Send him statements to fact check by emailing him, tweeting at him, or sending him a message on Facebook.
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