The failure to resolve the debt ceiling issue is once again likely to result in a downgrade of US debt. Ratings agency Fitch is already outlining two paths to a downgrade.
One would be if lawmakers put paying down the national debt before satisfying other government obligations like Social Security. The other would be failure to address the growing debt burden.
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The US Treasury is expected to once again hit the debt ceiling sometime between February 15 and March 1.
A lower rating on the country’s debt could raise borrowing costs and signal to investors that the US is having problems managing its fiscal house.
Even if lawmakers raise the debt ceiling, Fitch may cut the debt rating if nothing is done about the nation’s long-term debt load.
The agency says waiting until the last minute to fix things damages investor confidence and also may damage the economic recovery.
Living hand to mouth and robbing Peter to pay Paul is not indicative of a triple-A rated government.
All three ratings agencies—Fitch, Moody’s, and Standard and Poors—have said they have been waiting for the outcome of the fiscal cliff and debt ceiling negotiations to see if Congress can achieve budget agreements that will stick.
Fitch’s overall assessment of the US is positive based a comparison of the economic recovery and the improving housing market with the European Union and the UK.
All of that could change unless Congress comes up with a credible plan to gradually reduce the deficit over the medium term (six months), which will allow the US to keep its triple-A rating