I was thinking about this age old taunt.
What does it mean? Where did it come from?
Not : Oh, that’s a relief I was afraid I wouldn’t be able to use the liar, liar pants on fire defense ?
The “pants on fire” phrase is a metaphor for something that is clearly visible and obvious. It is clearly obvious that you are lying, just as it would be clearly obvious if your pants were on fire. That particular metaphor was chosen for its liar/fire rhyme.