Deadlock on debt ceiling prompts ratings agencies to warn of downgrade risk

0

Wall Street’s major rating agencies are starting to raise red flags about the potential fallout if the United States defaults on debt for the first time.

S&P Global Ratings warned on Thursday that a default would be “unprecedented in modern times for an advanced G-7 country” like the United States, setting the stage for what S&P described as “serious and extraordinary” fallout. “. The rating agency owned by S&P Global, however, expects lawmakers to tackle the debt ceiling.

On Friday, Fitch Ratings issued a similar warning.

“Fitch believes the debt limit will be raised or suspended in time to avoid an event of default, but if this is not done in a timely manner, the tightrope policy and reduced funding flexibility could increase. the risk of a US sovereign default,” he said. . Nevertheless, if the United States defaults, Fitch has said he will downgrade the United States

Leftist lawmakers have been scrambling to tackle the $28.4 trillion debt ceiling the US government is about to hit.

Democrats attempted to do so on Monday by including it in a broader measure to temporarily fund the government, but were blocked by Republicans who expressed little interest in helping Democrats raise or even suspend the cap. debt. “There is no chance, no chance that the Republican conference will do everything possible to help the Democrats save their time and energy, so that they can resume the passage through partisan socialism as quickly as possible,” said Senate Minority Leader Mitch McConnell, who voted. nearly three dozen times to previously raise or suspend the debt ceiling on Monday.

US Treasury Secretary Janet Yellen expects the United States to default on its debt by October 18, if the debt ceiling remains in place at its current level, although the exact date is still unknown.

A default would not only be unprecedented. It would also have widespread financial and economic implications domestically and around the world, Yellen said. The US unemployment rate, for example, could rise to 9% as a result, according to Moody’s Analytics. Lenders may not be as willing to accept Treasury bonds as collateral, according to The New York Times. And S&P’s 2011 U.S. debt downgrade, which followed a similar debt ceiling standoff that was eventually resolved, rocked markets in a selloff today known as Black Monday – providing potentially a harbinger of what could happen. JPMorgan Chase CEO Jamie Dimon recently said Reuters that a default would be “potentially catastrophic”.

S&P sees the “uncertainties surrounding periodic political standoffs over the debt ceiling” as potentially damaging to public confidence and the condition of financial markets. Yet he still believes that the current tension around the debt ceiling will be resolved, as the rating agency said in its report: “These uncertainties reflect political maneuvering rather than underlying economic difficulties.”

Subscribe to Fortune Daily to get essential business stories straight to your inbox every morning.

Share.

Comments are closed.