“What we saw last week is the markets unfortunately agreed with me. Because the markets saw what happened in Washington when Obama got a $2.4 trillion check. And one thing you learned is you can't fool the markets. …We just raised the debt ceiling and added $2.4 trillion more to the debt.…The reason why they [Standard & Poor’s] lowered the rating is because we dumped another $2.4 trillion in debt on the backs of Americans of the next generation.”
— Rep. Michele Bachmann (R-Minn.), August 8, 2011
Rep. Michele Bachmann’s rally in Council Bluffs, Iowa, earlier this week (full video clip below) is a good demonstration of the passion the GOP presidential aspirant brings to her speeches and the enthusiasm she generates from her supporters.
But does her story about the debt limit — and her opposition to raising it — match the facts? Did markets decline because the federal debt ceiling was increased by $2.4 trillion? And did Standard & Poor’s lower the government’s credit rating because the debt ceiling was increased?
Bachmann starts out by perpetuating a myth by saying that President Obama received “a $2.4 trillion check.” Congress has already committed to spend much of this money, under budgets passed in previous years. Lifting the debt ceiling merely means that the Treasury now has the authority to make good on bills that are coming due.
The debt ceiling is actually a rather arbitrary limit that was placed on the ability of the Treasury. (We have previously recounted some of this history.) Republicans used the debt limit to force the White House to agree to cuts in future spending, but it is a misnomer to call this a “check” for Obama. Nor did the debt-limit increase immediately add that amount to the national debt.
But Bachmann’s larger point is that the market turmoil is a direct result of raising the debt limit — and that Standard & Poor’s lowered its AAA rating on U.S. Treasury bonds because the debt ceiling was increased. This is incorrect.
In a previous life, The Fact Checker covered the stock and bond markets and thus knows that it is always difficult to attribute any single factor to market fluctuations. The American economy has clearly been slowing, however, and that — combined with troubles in Europe — has led to market uncertainty. The slide on Wall Street, in fact, began around July 22, more than 10 days before the debt ceiling was increased.
Certainly, the political tussle between the Democrats and Republicans over the debt ceiling did not inspire much confidence that the two sides could make much progress in addressing economic and budget issues.
In fact, that was a critical reason, S&P said, behind its lowering of the bond rating.
In its report on the downgrade, the firm’s analysts said the deal between the White House and Congress did not go far enough to address “medium-term debt dynamics,” and the debt fight indicated “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.”
Indeed, S&P analysts voiced concern that “the statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.” The company expressed relief that the debt ceiling had been lifted, saying the action “removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling.”
The Pinocchio Test
Bachmann’s opposition to the debt-ceiling increase does not give her license to reinvent what happened after the deal was struck between Congress and the White House.
It is simply wrong to say S&P lowered the rating on U.S. bonds because the debt limit was increased; the agency wanted the debt limit increased, in direct opposition to Bachmann’s views. And while S&P’s downgrade appears to have played some role in the market turmoil, broader economic concerns in the United States and abroad have been a much more important factor.
The debt-ceiling increase itself played only a bit part in the market drama, though the debate over it certainly focused attention on the political dysfunction in Washington.
NOTE: Attending a town hall with your lawmaker this month? E-mail any dubious quotes that seem worthy of checking to firstname.lastname@example.org.