At times reading from a Wall Street Journal editorial during his floor speech, the Arizona Republican also ridiculed Democrats, saying Senate Majority Leader Harry Reid's plan is "full of smoke and mirrors."
But he directed the most biting sarcasm at his own party.
The "hobbits" remark came from the Journal editorial, a reference to the little people of Middle-earth in J.R.R. Tolkien's "The Lord of the Rings" trilogy.
McCain said conservatives' insistence that an increase in the debt ceiling be accompanied by a balanced budget amendment was "worse than foolish" because it couldn't get through the Senate.
Reading from the editorial, McCain continued: