There’s No Such Thing as a Temporary U.S. Default

Friday, June 10, 2011
By Paul Martin

By Daniel Indiviglio
TheAtlantic.com

What if the debt ceiling debate causes the U.S. to miss just a couple of interest payments, say for the months of August and September? As long as the Treasury resumes payments in October, then no harm done, right? This misconception was put to rest by the rating agency Fitch in a statement yesterday. The firm makes clear that there’s effectively no such thing as a temporary default: the nation’s rating will not quickly bounce back.
At this time, the Treasury is already taking “extraordinary measures” to meet its debt obligations, since the debt ceiling needed to be raised in May. In August, those extraordinary measures won’t be enough, and the Treasury must prioritize debt payments above its other obligations to avoid default. At that time, the U.S. will be in “technical default” even if it doesn’t miss a payment.

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