Fitch Ratings, one of the world’s top three credit ratings agencies warned that it might downgrade the “AAA” credit rating of the United States as lawmakers suspended their negations to end the government shutdown and raised the debt ceiling before the deadline on October 17.
The ratings agency placed the United States’ AAA credit rating on “rating watch negative (RWN)”, a move that would lead to a downgrade if the Congress fails to raise the government debt ceiling on time before the Treasury Department exhausts all the extraordinary measures it is using to fulfill its obligations to creditors.
Fitch Ratings is still convinced that the Congress will raise the government’s borrowing limit soon. The agency emphasized that the strategic risk taking of politicians and reduced financial flexibility increase the risk for the United States towards default.
In addition, Fitch Ratings said the Treasury Department will still have $30 billion cash reserves in case lawmakers fails to raise the debt ceiling on October 17. However, the agency noted that the Federal Reserve’s capacity to make payments will be limited, and it will be exposed to volatile revenue and expenditure flows. In addition, the Federal Reserve will not be able to prioritize its debt services.
Fitch Ratings further explained, “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.”
Moreover, Fitch Ratings said that the extended negotiations in the Congress on raising the debt ceiling reduce confidence in the role of the U.S. dollar as the preeminent global reserve currency. “This faith is a key reason why the U.S. ‘AAA’ rating can tolerate a substantially higher level of public debt than other ‘AAA’ sovereigns,” according to the credit ratings agency.
Earlier today, Senate Majority Leader Harry Reid expressed disappointment with Republican House Speaker John Boehner for trying to preserve his leadership in the lower chamber. at the expense of the country. Reid said the proposal presented by the Republican leaders of the House of Representatives will not pass in the upper chamber. He also warned the credit rating of the United Stated might suffer another downgrade as early as tonight.
