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Third Bond Rating Firm Threatens Credit Downgrade If Debt Ceiling Isn’t Raised

After Moody’s and S&P warned us last week, the U.S. is now being warned by a third major bond rating farm:

Another major bond rating firm on Monday reiterated its threat to downgrade the U.S. government to a B-plus rating if the debt ceiling isn’t raised by August 2 and the government defaults on its debts.

The warning from Fitch Ratings comes after Moody’s and S&P warned last week that they would lower the U.S. rating from the top mark of AAA if the country is unable to repay its debts next month.

Fitch said Monday that it will place the U.S. rating in what it calls “ratings watch negative,” a status that can lead to downgrading in three-to-six months.

The ratings agency said it still expects congressional Republicans and President Barack Obama to reach a deal in the next few weeks, but would downgrade the rating if the Treasury Department is unable to pay the $90 billion in Treasury bills that mature on August 4.

Are you listening yet Washington?

 

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Dave says:

    Are you listening yet Washington?

    Stop it. It’s “Are you listening yet, Republicans in Washington?”

    Like or Dislike: Thumb up 4 Thumb down 1

  2. Even more specifically: are you listening yet, Tea Party faction of the GOP?

    Like or Dislike: Thumb up 5 Thumb down 1

  3. Polaris says:

    I think the “Tea Party” is hearing this perfectly well. They don’t care. I expect most put the big time bondholders in the same category as the politicos (of both parties) that got us into this mess to begin with. Again, if we don’t solve the budget now on our own terms, then within a handful of years, our creditors will solve it for us, and I promise you, it will be a thousand times worse.

    -Polaris

    Like or Dislike: Thumb up 4 Thumb down 3

  4. @Polaris: So, you think creating a crisis now is the right thing to do?

    Also: you do realize that it is not just the bondholders who will suffer?

    Like or Dislike: Thumb up 4 Thumb down 1

  5. David M says:

    @Polaris: In what way will it be “a thousand times worse” than defaulting now?

    Like or Dislike: Thumb up 0 Thumb down 0

  6. Polaris says:

    In what way would it be a ‘thousand times worse’? If we have to borrow money just to borrow money, then our foreign creditors could pull the plug (and would honestly have to pull the plug) at any time of their choosing just to get some of their money back. We’d have to print money to cover this….see hyperinflation. Worse, unfriendly countries could blackmail the US into becoming effectively a client nation to avoid this.

    As bad as forcing the issue now is (and it is bad, I’ve never said otherwise), it’s far better to do so on our own terms while we can still service our own debt. Only this way in the long term will we salvage our economy and credit rating (which shouldn’t have been AAA for years) and retain our basic sovereignty.

    -Polaris

    Like or Dislike: Thumb up 0 Thumb down 0

  7. Shorter Polaris: forget a real crisis with real consequences and real bond ratings agency telling us exactly what will happen in mere weeks if we don’t raise the debt ceiling. Instead: focus on fantasy that happen someday, maybe.

    Yes, a bit snarky, but I am almost out of patience on this issue.

    Like or Dislike: Thumb up 3 Thumb down 0

  8. Polaris says:

    Steven,

    I am enaging in fantasy? In TWO YEARS we have gone from a deficit of about 26% of our GDP (which was more or less constant during the Bush years) to nearly seventy percent of our GDP. We haven’t been in that bad financial shape since the Korean War…and we were getting out of a major global war and a Great Depression then.

    What I am talking about is not fantasy but grim reality if short-sighted political opportunits like youi keep on being able to ‘kick the can down the road’. There isn’t much more road to go, and Obama is primarily to blame.

    -Polaris

    Like or Dislike: Thumb up 0 Thumb down 3

  9. @Polaris:

    Yes, you are.

    You are willing to create an immediate financial disaster to avert a potential problem down the road. And while I am not denying that there are long-terms issues that require addressing, I call it utter foolishness to state that not raising the debt ceiling is a good idea.

    Like or Dislike: Thumb up 3 Thumb down 0

  10. An Interested Party says:

    There isn’t much more road to go, and Obama is primarily to blame.

    Who knew that the President held the office throughout the first eight years of this century as well as the first eight years of the 1980s…

    Like or Dislike: Thumb up 0 Thumb down 0

  11. Polaris says:

    Look at the CBO chart of Deficit/GDP. This is the ratio that matters. It clearly tells you which president is responsible for our debt problem today, and it’s not Bush.

    -Polaris

    Like or Dislike: Thumb up 0 Thumb down 0

  12. David M says:

    @Polaris: You’re conveniently leaving off the last deficit of the Bush years, FY2009. You’re also confusing the yearly deficit with total debt.

    The position that we need to cause a financial crisis to avoid the same financial crisis later is lunacy.

    Like or Dislike: Thumb up 4 Thumb down 0

  13. @David M:

    The position that we need to cause a financial crisis to avoid the same financial crisis later is lunacy.

    This is exactly correct.

    Like or Dislike: Thumb up 2 Thumb down 0

  14. Polaris says:

    With all due respect it’s not lunacy. It’s like changing oil in a car. Do you change your oil now, or do you replace your engine later. Both will cost money, but one costs a lot less than the other. In this case we can impose painful cuts now to avoid a catastrophic true default later that will not only cause all the problems you’ve mentioned today but a potential loss of the dollar’s value (hyperinflation) and basic national sovereignty as well.

    But don’t believe me. Go ahead and close your eyes and just assume we can borrow money forever. Don’t blame me when we find out (much sooner than you think) that you were wrong.

    -Polaris

    Like or Dislike: Thumb up 0 Thumb down 0