U.S. stock futures were mixed after the top Triple-A credit ratings of the U.S. were placed on “rating watch negative” by credit firm Fitch Ratings Wednesday evening, due to “brinkmanship” in Washington, over raising the government’s borrowing limit and the nation’s growing debt burden.
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After the U.S. reached its $31.4 trillion debt limit in January, the Treasury has been taking “extraordinary measures” to avoid breaching the debt ceiling, but is expected to exhaust its options as soon as June 1, 2023, or the “X-date,” with cash balances at the Treasury falling to $76.5 billion as of May 23, Fitch said.
“The failure to reach a deal to raise or suspend the debt limit by the x-date would be a negative signal of the broader governance and willingness of the U.S. to honor its obligations in a timely fashion, which would be unlikely to be consistent with a ‘AAA’ rating,” Fitch said.
Also, avoiding a default by minting “a trillion-dollar coin or invoking the 14th amendment is unlikely to be consistent with a ‘AAA’ rating and could also be subject to legal challenges,” the rating firm said.
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“As Secretary Yellen has warned for months, brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers, and threatens the credit rating of the United States,” Treasury spokesperson Lily Adams said Wednesday night. “Tonight’s warning underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy.”
While Fitch said the likelihood of the U.S. failing to make full and timely payments of its debt securities was a “very low probability event,” it would be considered a debt default that would result in ratings on affected securities being slashed to “D,” with other debt securities maturing in the following 30 days downgraded to “CCC.”
S&P Global Ratings in 2011 cut its long-term credit ratings for the U.S. to AA+ from Triple A, after a protracted U.S. debt-ceiling fight.
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