Without an agreement on the debt ceiling, the United States is threatened with default.
(Photo: Reuters)
Washington, NY The rating agency Fitch takes a somewhat more critical view of the creditworthiness of the world’s largest economy, the USA, in view of the debt dispute and is signaling a possible downgrade. The credit watchdog on Wednesday (local time) kept the top rating “AAA” but lowered the outlook for creditworthiness to “negative”, which could mean a downgrade. Fitch justified the decision with the ongoing dispute over raising the debt ceiling and the risk of national bankruptcy as a result. Fitch is one of the top three rating agencies alongside Moody’s and Standard & Poor’s.
According to Fitch, a solution to the debt dispute is still expected. However, it is believed that the risk has increased that the debt ceiling will not be raised in time and that the US government will no longer meet its payment obligations. “The dispute over the debt ceiling and the US authorities’ failure to seriously address the medium-term fiscal challenges that will lead to rising budget deficits and growing debt burdens signal downside risks to US creditworthiness,” Fitch said.
In the United States, Parliament, not the government, decides how much money the state can borrow. For weeks, Republicans and Democrats have been arguing in tough rounds of negotiations about raising the debt limit. According to forecasts by the Treasury Department, the US government is threatened with default from the beginning of June. If it really came to that, it could result in a global financial crisis.
In 2011, a Republican majority in the US House of Representatives delayed raising the debt ceiling for so long that the US credit rating was downgraded for the only time in history. At that time, Standard & Poor’s recognized the top grade “AAA” and has since rated the USA with “AA+” – i.e. one grade lower.
“Made some progress”
Meanwhile, in the negotiations in Washington, a rapprochement is evident. The negotiators of US President Joe Biden and the negotiator of the opposition Republicans, Kevin McCarthy, made progress on Wednesday, according to both sides. “We have made some progress at work (…). That’s very positive,” McCarthy told reporters after a four-hour meeting at the White House.
“I want to make sure we get the right deal. I can see we’re working towards that.” US Presidential spokeswoman Karine Jean-Pierre said the talks remain fruitful. If things continue like this, “we can come to an agreement here.”
The House of Representatives will begin a week-long Memorial Day holiday on Thursday. However, Republican Steve Scalise said lawmakers would still be called to vote if an agreement was reached on raising the debt limit. Time is of the essence: According to the Treasury Department, the United States is threatened with insolvency from June 1 without an agreement.
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