“The increasing use of debt limit standoffs to advance political agendas, combined with political polarisation, is a recipe for more, not less, confrontation around the US debt limit in the years ahead. Repeated near-default episodes brought on by debt limit debates could erode confidence that the US government’s repayment capacity is resilient to political dysfunction and may affect Fitch’s view of the sovereign credit profile.”
—A team of analysts at Fitch Ratings on Tuesday warning about the dangers inherent in using the federal debt ceiling as a political tool. Although the ratings agency expects lawmakers to act in time to avoid a default, the analysts spelled out what could be expected to happen if they do not: “If the limit were not raised or suspended in time to avoid a default, the US’s rating would be moved to ‘RD’ (Restricted Default). Affected Treasury securities would carry a ‘D’ rating until the default was cured. Prioritising debt payments to avoid an immediate default, if this were possible, might not be consistent with a ‘AAA’ rating.”
