October 16, 2013 - 10:13 AMT
PanARMENIAN.Net - The U.S.’s AAA credit grade was placed on rating watch negative by Fitch Ratings, which cited the government’s failure to raise its borrowing limit as the Treasury’s deadline nears, according to Bloomberg.
“The political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default,” Fitch, which is a jointly owned subsidiary of Paris-based Fimalac SA and New York-based Hearst Corp., said in a statement. Fitch reiterated that it expects the debt ceiling to be raised.
Treasury Secretary Jacob J. Lew has told Congress the extraordinary measures being used to avoid breaching the debt ceiling “will be exhausted no later than Oct 17” and the department will have about $30 billion to pay obligations. Fitch said it expects to resolve its rating watch negative outlook on the U.S. by the first quarter of 2014.
“The announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy,” according to a Treasury statement.
Standard & Poor’s stripped the U.S. of its top credit ranking on Aug 5, 2011, on Washington gridlock and the lack of an agreement to contain its growing ratio of debt to gross domestic product. The U.S.’s ratio of public debt to GDP is forecast to fall to 74.6 percent in 2015 after peaking next year at 76.2 percent, according to a Congressional Budget Office forecast in May.
“Treasury may be unable to prioritize debt service, and it is unclear whether it even has the legal authority to do so,” Fitch said of the U.S. making payments to bondholders while withholding on other obligations. “The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens -- all of which would damage the perception of U.S. sovereign creditworthiness and the economy.”
Moody’s Investors Service assigns the U.S. a stable AAA ranking and said this week that it expects the debt ceiling to be raised, averting a default.
Senate Democratic leader Harry Reid and his Republican counterpart, Mitch McConnell, were expected to brief their colleagues on Wednesday, Oct 16.
But even if a Senate compromise can overcome procedural hurdles, it remains unclear whether it could muster enough votes in the Republican-led House to pass before the Oct 17 deadline, BBC News says.
Democratic Senator Barbara Mikulski warned her colleagues that the U.S. was "hours away from becoming a deadbeat nation, not paying its bills to its own people and other creditors".
The Senate's negotiations were initially put on hold on Tuesday to give House Republicans a chance to come up with a deal.
But the lower chamber's efforts ended in chaos after two proposals floated in the space of a few hours were torpedoed from right and left, forcing the leadership to shelve plans for a vote.