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PolitiFact.com | St. Petersburg Times
Sorting out the truth in politics

PolitiFact: Nation may have money problems, but it isn't bankrupt

The statement

"The country's bankrupt."

Rep. Ron Paul, R-Texas, in comments during Thursday's GOP presidential debate in Ames, Iowa

The ruling

Republican presidential candidate Rep. Ron Paul of Texas, who has raised warning flags about U.S. debt for decades, declared during Thursday's Ames, Iowa, debate that "the country's bankrupt."

Is it?

For this fact-check, we'll rely 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."

We'll tackle the more specific definition first. 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 idea 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.

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.

We'll note that the ratings are forward-looking — they evaluate whether the United States is likely to default in the future. But Paul went further than that. He said that "the country's bankrupt," in the present tense. So we asked the U.S. Treasury Department: Can the country pay its bills right now?

Yes, said spokesman Matt Anderson, pointing out that the Bureau of Public Debt has had no trouble selling bills, notes and bonds to finance the public debt.

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.

We rate Paul's statement False.

This ruling has been edited for print. Read the full version at PolitiFact.com.

PolitiFact: Nation may have money problems, but it isn't bankrupt 08/12/11 [Last modified: Friday, August 12, 2011 10:47pm]
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