WASHINGTON, DC — Just 7 days away from a catastrophic default crisis that all but guarantees a deep recession, and the hostage situation remains the same: Increasingly unreasonable demands, unhinged rhetoric, and shifting goal posts from the MAGA House Majority stands firmly in the way of the nation responsibly paying its bills and avoiding economic disaster. Added to the long list of dire consequences of the MAGA Majority’s manufactured default: a potential credit downgrade. Ratings agency Fitch has now placed the United States’ “perfect” credit rating on notice for a “potential credit downgrade” as a result of the default brinkmanship.
A potential U.S. credit downgrade that will torpedo markets and skyrocket interest rates is yet another dire consequence of the MAGA Majority’s march towards a manufactured default – on top of disrupting Social Security checks seniors rely on. Speaker McCarthy and his far-right MAGA Majority waste precious time at the expense of everyday Americans with their lose-lose proposition: either painful cuts that would wreak havoc on the lives of veterans, seniors and the food-insecure, or an artificial default crisis that delays Social Security checks, jacks up interest rates, and wipes out millions of jobs.”
Liz Zelnick, Director of Accountable.US’ Economic Security & Corporate Power.
Today In Focus: Reuters: “Fitch puts US rating on negative watch as debt deadline
Ratings agency Fitch put the United States’ credit on watch for a possible downgrade on Wednesday, raising the stakes as talks over the country’s debt ceiling go down to the wire, and adding to the jitters in global markets.
Fitch put the country’s “AAA” rating, its highest rank, on a negative watch in a precursor to a possible downgrade should lawmakers fail to raise the amount that the Treasury can borrow before it runs out of money, which could happen as soon as next week.
Fitch, one of the top three credit rating agencies along with Moody’s and S&P, placed the US “AAA” on “rating watch negative,” signaling that it could downgrade US debt if lawmakers do not agree on a bill that raises US Treasury’s debt limit.
“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt),” the company said in a statement.
The White House on Wednesday pointed to Fitch Ratings’ move as cause for urgency on raising the debt ceiling.
“This is one more piece of evidence that default is not an option and all responsible lawmakers understand that. It reinforces the need for Congress to quickly pass a reasonable, bipartisan agreement to prevent default,” a White House spokesperson said in a statement.
Fitch Ratings has put the U.S. on notice for a potential credit downgrade as President Joe Biden and Republican lawmakers struggle to reach a deal to raise the debt limit.
“We believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations,” the ratings service said in a statement Wednesday.
“The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to U.S. creditworthiness,” Fitch said.
Treasury securities are the bedrock of the global financial system, and a downgrade from Fitch — which would mark only the second time a ratings service has knocked U.S. bonds from top-tier status — could drive up borrowing costs on everything from municipal debt to credit cards.
Biden administration officials are warning that the protracted battle over the debt limit puts the U.S. at risk of losing its top credit rating. S&P lowered the U.S. credit rating in 2011, days after President Barack Obama and Republican leaders agreed to lift the debt ceiling while securing spending cuts. That further strained the economy as it fought to recover from the global financial crisis.
If the U.S. government defaults on its debt even for just a few hours next week, it could have long-lasting consequences for the nation’s future. Three major ratings companies — S&P Global Ratings, Moody’s and Fitch Ratings — play a big role in how damaging those consequences can be.
Because the financial fallout of a default would be severe, the agencies expect lawmakers to come to an agreement before the government runs out of cash to pay its bills, which could happen as early as next month. But if the government ends up missing a debt payment, all three companies have vowed to lower the rating of the United States as a borrower, and they may be reluctant to restore it to its previous level, even if a deal is reached soon after the default.
BACKGROUND: Accountable.US’ ‘Cost of MAGA Default’ project puts a daily spotlight on specific harms the MAGA Majority’s default plan and brinkmanship will bring for Main Street and Wall Street alike – from tanking markets, frozen credit, lost jobs, disruptions to critical benefits like Social Security, and soaring interest rates on everything from car loans to mortgages. While the MAGA Majority claims they are holding the economy hostage over supposed debt ‘concerns,’ they insist on harmful cuts – crafted by the far-right House Freedom Caucus – aimed at average Americans while protecting and even expanding debt ballooning tax breaks for billionaires and big corporations that profiteer and ship U.S. jobs overseas. The current Republican tax plan endorsed by Speaker McCarthy would add $3.5 trillion to the debt in just 10 years. The clock is ticking. The MAGA majority should stop playing dangerous political games with American lives and the economy and responsibly pass a clean bill that allows the nation to pay its bills. The sooner they do, the less damage will be inflicted on Americans of all walks of life.
The extreme MAGA House Majority is threatening to manufacture a catastrophic default crisis and economic collapse. To hold the economy hostage, the House passed a long list of hugely unpopular and extreme ransom demands that promise pain for millions of average Americans including veterans, seniors, students, children, workers, and the food insecure. They voted to ship 100,000 high paying manufacturing jobs overseas while going out of their way to protect wealthy tax cheats that shift costs on to average Americans. The MAGA Majority’s proposed cuts that especially punish the poor are untenable, unworkable, and unreasonable, especially as they leave in place costly tax breaks for billionaires and big corporations. They’ve drawn “red lines” that any debt deal must include ineffective work requirements that fail to put people to work while leaving many more uninsured. With the nation now projected to run out of money as early as June 1st, Accountable.US’ Cost Of MAGA Default’ project continues to underscore the catastrophic consequences of a MAGA default that grows closer by the day.