Staring at the Ceiling

Fitch to US: Debt ceiling shenanigans will cost you your AAA

March 1, 2013
Obsession
Debt
March 1, 2013

This is about as transparent as the credit rating firms get:

“The debt ceiling limit which comes back into force on May 19, certainly if that wasn’t addressed in a timely fashion, we don’t think another debt ceiling crisis like we had in August 2011 would be consistent with the U.S. retaining its AAA rating,” David Riley, managing director of sovereign ratings, said on Bloomberg Surveillance in an interview with Sara Eisen.

It’s tough to keep all of the different US fiscal hurdles straight. Today is the deadline to avoid the across-the-board spending cuts we call the “sequester.” Then next hurdle is March 27, when the current stopgap legislation that’s funding the government expires. That could prompt a government shutdown. But according to Fitch, the big worry is another fight over the debt ceiling—which we’re due to hit on May 18. Essentially, that amounts to US politicians playing footsie with the idea of default. In a report out earlier this week, Fitch analysts wrote:

In Fitch‟s opinion, the debt ceiling is an ineffective and damaging mechanism for enforcing fiscal discipline. Ineffective because it is not simultaneously decided with budgetary decisions that determine the volume of borrowing by the federal government and damaging because the implied threat of default undermines confidence in the full faith and credit of the US.

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