Report: S&P Will Downgrade Dramatically Unhonored Treasuries After August 4

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It almost goes without saying that if the United States doesn’t raise its debt limit and, thus, fails to make an interest payment on the world’s supposedly safest investment — its own Treasuries — then the value of that investment will plummet.

Standard & Poors made it official Wednesday by declaring that any Treasury maturing on August 4, that the government fails to honor, will be given a D-rating.

As , the country’s biggest credit ratings agencies, including S&P will downgrade the country’s triple-A credit rating if it defaults, even briefly, on any of its obligations. S&P in particular told TPM that the U.S. rating would drop to “Selective Default.”

This revelation, reported by Reuters, created a bit of confusion, and led some to conclude that the credit rating for the entire country would be given a big fat “D.”But that’s not the case.

“U.S. Treasury bills maturing on August 4 would be rated ‘D’ if the government fails to honor them,” Reuters reported, based on an interview with S&P’s managing director.

That’s what happens when you don’t pay your bills on time. What happens to the individual bonds that do get paid? They might get dinged, but not as severely. Per Reuters, “Unaffected Treasuries would be downgraded as well, but not as sharply.”

All of this will be easily avoided if Congress raises the debt limit by the end of July. But Republicans and Democrats are at a serious impasse, and the credit markets are now firing warning shots at Washington in the hope that they wake up.

ABOUT THE AUTHOR

Brian Beutler is TPM's senior congressional reporter. Since 2009, he's led coverage of health care reform, Wall Street reform, taxes, the GOP budget, the government shutdown fight and the debt limit fight. He can be reached at brian@talkingpointsmemo.com
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