The ratings agency Fitch on Tuesday warned that if the U.S. doesn’t raise the debt ceiling promptly, it will “very likely prompt a downgrade” — even if the nation’s debt obligations are still being paid.
From Fitch:
With no legal authorisation for net debt issuance, the Treasury would be forced to immediately eliminate the deficit – a fiscal contraction twice as great as the recently avoided ‘fiscal cliff’ – by delaying payments on commitments as they fall due. It is not assured that the Treasury would or legally could prioritise debt service over its myriad of other obligations, including social security payments, tax rebates and payments to contractors and employees. Arrears on such obligations would not constitute a default event from a sovereign rating perspective but very likely prompt a downgrade even as debt obligations continued to be met.
Read the whole letter here.
