Once again warning that the nation faces serious risks from a debt default, Treasury Secretary Janet Yellen said Wednesday that it was “almost certain” that the U.S. would be unable to meet its financial obligations past early June if the debt limit is not raised or suspended in the very near future.
“Treasury and President Biden will face very tough choices if Congress doesn’t act to raise the debt ceiling and if we hit the so-called X-date without that occurring,” Yellen said. “There will be some obligations that we will be unable to pay.”
Yellen also said that prioritizing payments, which some Republican lawmakers say the Treasury can do easily enough to avoid defaulting on debt payments, would be difficult. “Prioritization is not really something that is operationally feasible,” she said, noting that the Treasury system is set up to make payments on time, not to pick and choose which ones to make.
Credit rating threat: If Treasury is forced to make those prioritization decisions, the missed payments could damage the U.S. credit rating – and for a very long time, as The New York Times’s Joe Rennison reports. Officials at Moody’s told Rennison that a default would alter their opinion of the risk inherent in U.S. debt. “Our view is that we would need to reflect that permanently in the rating,” said William Foster, the lead analyst for the United States at Moody’s.
S&P Global Ratings – one of the three major credit ratings agencies, which include Moody’s and Fitch Ratings – lowered the U.S. rating in 2011, during another Republican-led showdown over raising the debt limit, knocking the country down to AA+, even though a default was avoided.
John Chambers, who was on the S&P ratings team in 2011, told the Times that the threat of a politically-driven default remains in place. “The thing that was most powerful in the 2011 decision was the political setting and that you had a very clear path to default. And it’s still there,” he said. “The current debate validates S&P’s decision to cut the rating and leave it there.”