American Credit Rating Under Danger

A week before a crucial deadline, ratings firm Fitch warned the White House and Republican opposition that their standoff on raising the country’s borrowing limit could risk the United States’ excellent credit rating.

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According to Fitch, the action “reflects increased political partisanship that is impeding reaching a resolution to raise or suspend the debt limit” before June 1. Fitch placed the nation’s AAA-rated credit on “rating watch negative” in a statement.

According to the US Treasury Department, that is the “X-date” when the government will run out of money and fall into default, which may have disastrous economic repercussions for the US and possibly for the rest of the globe.

“Fitch still expects a resolution to the debt limit before the X-date,” the rating agency stated. “However, we believe risks have increased that the debt limit won’t be raised or suspended before the X-date and as a result, that the government may start to default on some of its debts.”

Fitch Ratings has put the nation’s AAA long-term foreign-currency issuer default rating on negative watch, citing the brinksmanship over the debt ceiling, just days before the United States may default on its debt. The economy and American consumers would suffer greatly if the nation were to go into default on its obligations.

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The agency stated in a press release on May 24 that the rating watch negative reflects “increased political partisanship that is impeding reaching a resolution to raise or suspend the debt limit despite the rapidly approaching X-date (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt).

While Fitch stated that it still anticipates a debt ceiling agreement before the X-date, it also highlighted the fact that risks have increased and that the government may start to default on some of its debts.

The White House Council of Economic Advisers previously stated that the U.S. economy would likely suffer serious harm from a real breach of the debt ceiling. According to a recent Moody’s analysis cited, job growth would continue over the following few quarters, generating 900,000 jobs, under a clean debt ceiling rise. However, in the event of a lengthy default, there would be a loss of about 8 million jobs. Wall Street traders have expressed concerns about “seismic” repercussions if the United States did default, writing to Yellen in the introduction of the letter that a protracted period of inaction would “dramatically increase taxpayer costs and exacerbate market stress.”

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All levels of government, including state and municipal, would see a reduction in their capacity to spend money, in addition to employment and market losses. The absence of credit opportunities for American borrowers would only make those challenges worse, having an impact on the housing and auto sectors among other things.