‘Brinkmanship’ over US debt limit puts AAA status at risk
AMERICA’S top tier credit ratings could be downgraded as the government edges closer to running out of money.
Fitch Ratings has placed the country’s “AAA” status on negative watch because of “brinkmanship over the debt ceiling” and the failures of the Biden administration to address growing debt burden risks.
Janet Yellen, the US treasury secretary, has warned the government could run out of money by June 1, risking a first-ever missed payment on its debts.
Fitch warned: “The brinkmanship over the debt ceiling, failure of the US authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits, and a growing debt burden signal downside risks to US creditworthiness.”
A credit rating downgrade would make it more expensive for the US government to borrow. It would also send shockwaves through the global financial system given many investors hold US government bonds as a near goldplated safe investment.
Ms Yellen said in a letter this week: “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.” The US hit its $31.3trillion (£25.4trillion) debt limit in January and President Joe Biden has so far been unable to persuade his political rivals to agree to raise the figure.
Republicans are trying to leverage the deadline to push the Democrats to agree to spending cuts.
The US could also be downgraded if Mr Biden raised the debt ceiling using the 14th amendment, a clause some have argued means the limit agreed by Congress can be disregarded.
“Avoiding default by non-conventional means such as minting a trilliondollar coin or invoking the 14th amendment is unlikely to be consistent with a ‘AAA’ rating and could also be subject to legal challenges,” Fitch said.
Fitch said that it still expects a resolution to the debt ceiling deadlock before the deadline and argued there was a “very low probability” that the US would fail to make full and timely payments on its debt.