Fitch Ratings, one of the big three credit rating agencies, issued a warning today about the “prolonged negotiations over raising the debt ceiling,” which is a precursor to downgrading the US credit rating.
Republicans are gleefully preparing to force the nation to default on its debt, the effect of which, most observers outside of the Republican Congress agree, would be “catastrophic” to the US and world economy.
Fitch Ratings has placed the United States of America’s (U.S.) ‘AAA’ Long-term foreign and local currency Issuer Default Ratings (IDRs) on Rating Watch Negative (RWN). The ratings of all outstanding U.S. sovereign debt securities have also been placed on RWN, as has the U.S. Short-term foreign currency rating of ‘F1+’. The Outlook on the Long-term ratings was previously Negative. The U.S. Country Ceiling has been affirmed at ‘AAA’.
The prolonged negotiations over raising the debt ceiling (following the episode in August 2011) risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S. This “faith” is a key reason why the U.S. ‘AAA’ rating can tolerate a substantially higher level of public debt than other ‘AAA’ sovereigns.
Here’s CNBC’s take:
Alex Rogers has more at TIME:
The move is not a downgrade, or an indictment of broader U.S. economic conditions. Rather, it is a warning issued on the basis of Congressional negotiators’ inability to break the partisan impasse and extend U.S. borrowing authority before the Treasury Department-imposed deadline of Oct. 17.
Toward the end of the also-contentious 2011 debt ceiling debate, Standard and Poor’sdowngraded the United States’ long-term credit rating from ‘AAA’ to ‘AA+’. It was the first credit rating downgrade for the U.S. in history, and remains downgraded now.
S&P earlier this year adjusted its outlook on the U.S. credit rating from “negative” to “stable,” but the credit rating remains at “AA+.”
Moody’s threatened to downgrade the U.S. credit rating in 2011, though it never did. It also issued an early threat in 2012 for this year’s budget negotiations.
Fitch, S&P and Moody’s are considered the three top credit rating agencies.
Andrea Mitchell at NBC doesn’t think Fitch’s warning is going to be enough: