Fitch Warns Ahead of Debt Ceiling Deadline
Earlier today, Fitch Ratings placed the pristine AAA credit rating of the United States on Rating Watch Negative. Fitch noted that there are a number of different factors that may "individually or collectively result in a downgrade" of the nation's long-term foreign and local currency Issuer Default Ratings.
Fitch's move comes on a day when the mood in Washington grew decidedly darker. There was some real optimism that a deal was going to get done earlier in the week between Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell. That proposed deal would have seen the government re-opened until December 15th, while the nation's debt ceiling would have been raised until February 7th. In addition, the nation would have been allowed to utilize "extraordinary measures" to continue to pay the bills past that date.
The Reid/McConnell deal was thrown into turmoil when House Speaker John Boehner revealed that House Republicans would be looking to pass their own bill to end the crisis. According to reports, the House bill would re-open the government until December 15th and raise the nation's debt ceiling until February 7th, but it would prohibit the Treasury Department from utilizing "extraordinary measures" to fund the government past that date.
In addition, the House deal would reportedly "shorten the length of a stop-gap spending measure" and would also seek more concessions from Obamacare.
According to Fitch, there are a wide range of different factors that could negatively impact the nation's credit rating. They are:
-the fact that the debt ceiling still hasn't been raised, even though we are just hours away from the nation running out of money to pay all of its bills
-the potential damage to the nation's creditworthiness and economy as a result of a default
-the potential waning confidence in the USD as the "preeminent global currency"
In addition, Fitch contends that the "repeated brinkmanship" over increasing the debt limit could dent "confidence in the effectiveness of the US government and political institutions, and in the coherence and credibility of economic policy."
S&P famously downgraded the United States following the debt ceiling battle in the summer of 2011.
Will Fitch follow suit this fall?
Source: FitchRatings.com - Fitch Places United States' 'AAA' on Rating Watch Negative
Filed under: General Knowledge