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In his address to the nation about the debt ceiling "crisis," President Barack Obama had this to say about the consequences of failing to raise the debt ceiling:

"Interest rates would skyrocket on credit cards, on mortgages and on car loans, which amounts to a huge tax hike on the American people."
But this is completely wrong on two counts. First of all, a tax hike on the American people would go to the government, and allow the government to fund needed social programs, with the ancillary benefit that such spending creates jobs for the people delivering those social services. Interest is paid to banks and other corporations, and funds private profit (which quite often leads to one corporation buying another one with subsequent job cuts).

And secondly, higher interest rates on credit cards, mortgages, and car loans will not come out of the pockets of "the American people." No, they'll come out of the people who actually pay interest on their credit cards because they can't pay off their bills, people who have to borrow money to buy houses and cars rather than paying for them in cash. Who are these "people"? The poor and middle class, not the rich. And of course home owners itemizing deductions on their income tax get to deduct that increased mortgage interest directly from their income anyway, meaning even less money for the government.

No, President Obama, increased interest rates are in no way the equivalent of a "tax hike on the American people."

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