We're bankrupt.
At the Sept. 22, 2011 Fox News-Google Republican presidential candidates debate in Orlando, Fla., former New Mexico Gov. Gary Johnson was asked about U.S.-Cuba policy, but his reply somehow morphed into a frequent subject of Truth-O-Meter rulings: whether the U.S. is bankrupt.. Fox News anchor Bret Baier asked, "Gov. Johnson, here in Florida, charter flights from Ft. Lauderdale to Havana, Cuba, have resumed. Is there a problem with that? And what are your thoughts on U.S.-Cuba policy? Johnson responded, "I think the biggest threat to our national security is the fact that we're bankrupt," Johnson said. "So I am promising to submit a balanced budget to Congress in the year 2013, and included in that is a 43 percent reduction in military spending." Bankrupt? PolitiFact has examined that claim several times, most recently when Rep. Ron Paul, R-Texas, said it at a debate in Iowa on Aug. 11, 2011. (Oddly, Baier asked the question that time, too.) We rated it False, and we haven’t changed our minds. Here, as before, we’re relying on common definitions of "bankrupt" that seem to best fit the context of Paul's statement. One is "declared in law unable to pay outstanding debts." Another is "reduced to a state of financial ruin: impoverished." Since the U.S. government hasn't landed in bankruptcy court and been declared unable to pay its bills, we'll simplify it to whether the United States can pay its debts. Ratings agencies such as Standard & Poor's, Moody's and Fitch pay attention to this very question. They offer sovereign credit ratings based on the same standards as your credit score: What's the risk a nation might default on its debt by failing to pay its bills? And S&P did downgrade the country's credit rating on Aug. 5, 2011. But what does that mean, exactly? The United States had a AAA credit rating, which S&P defines as having "extremely strong capacity to meet its financial commitments." It's the highest rating you can get. After the downgrade, the United States has a AA+ credit rating. It's just one notch down from AAA on a scale that has more than 20 notches. S&P now says the United States "has very strong capacity to meet its financial commitments." The "+" shows that the U.S. rating is on the high side of AA. Meanwhile, two other ratings agencies, Moody's and Fitch, didn't change their U.S. ratings — America still has the highest rating they offer. Fitch Ratings said on Aug. 2, 2011, that "despite the heated political debate ... corporate sector balance sheets and profitability are healthy, underlying productivity growth is still relatively strong, and the U.S. dollar remains unchallenged as the global reserve currency." We'll note that the ratings are forward-looking -- they evaluate whether the United States is likely to default in the future. But Johnson, like Paul, went further than that, saying that "we’re bankrupt" – in the present tense. When we fact-checked Paul’s comment a few weeks ago, we asked the U.S. Treasury: Can the country pay its bills right now? Yes, said spokesman Matt Anderson. "Because Congress acted to prevent a default crisis, the government has been able to meet its financial obligations," he said. Meanwhile, he pointed out that the Bureau of Public Debt has had no trouble selling bills, notes and bonds to finance the public debt. (We should also note that in addition to using taxes, layoffs, spending cuts and debt shifting to fund its obligations, the federal government as sovereign nation could just print more money, though there are downsides to that approach.) Now, about that second definition, "reduced to a state of financial ruin: impoverished." Allow us an analogy: Your paycheck doesn't cover your bills every month. But you have a great credit score, use your credit card to cover the difference and have no trouble paying your credit card bill. Would you describe yourself as "bankrupt" or "impoverished"? We wouldn't. We'd reserve that description for the neighbor who was behind on his mortgage and couldn't pay his creditors. Johnson said that "we’re bankrupt." For all of our fiscal challenges, we conclude that the United States’ situation doesn’t meet the traditional definitions of that term. So we rate his statement False.
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