Fitch Threatens US with Downgrade

Wednesday, August 23, 2017
By Paul Martin

by Wolf Richter
Aug 23, 2017

Bitter irony! Just yesterday, I had a conversation with Bill Tilles, and we agreed on all three points. This morning, we’re already proven wrong on one of them:

1.A government shutdown as Congress fails to pass spending levels for fiscal 2018? Yes, it could happen.
2.A failure to raise the debt ceiling, thus pushing the US government into default, or “selective default?” Very unlikely. Lawmakers are political animals that use charades and posturing to accomplish their goals, but they’re not stupid (we hope).
3.A threat by US ratings agencies to slash the US credit rating due to the debt-ceiling charade and the consequences of a “selective default?” No way, we agreed. Ratings agencies learned their lesson from how the US government hounded Standard & Poor’s after its 2011 downgrade of the US.

A new day, and we’re already wrong. Standard & Poor’s may have learned its lesson. But Fitch Ratings hasn’t – though its language this morning was a lot kinder and gentler (emphasis added).

If the debt limit is not raised in a timely manner prior to the so-called “x date,” Fitch would review the US sovereign rating, with potentially negative implications. We have previously said that prioritizing debt service payments over other obligations if the limit is not raised – if legally and technically feasible – may not be compatible with ‘AAA’ status.

In the most recent letter to Congress, Treasury Secretary Steven Mnuchin said that the US would run out of money by the end of September. This can likely be stretched into October. Just this week, Senate Majority Leader Mitch McConnell swore there was “zero chance” that “we won’t raise the debt ceiling.”

The Rest…HERE

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