Standard & Poor’s: Default On Debt Will Turn T-Bills Into Junk Bonds

Standard & Poor’s has said that if the United States defaults on the bond interest payments that will come due on August 4th, it will downgrade our credit rating from AAA to D, the rating typically assigned to junk bonds:

(Reuters) – The United States would immediately have its top-notch credit rating slashed to “selective default” if it misses a debt payment on August 4, Standard & Poor’s managing director John Chambers told Reuters.

Chambers, who is also the chairman of S&P’s sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on August 4 would be rated ‘D’ if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said.

“If the U.S. government misses a payment, it goes to D,” Chambers said. “That would happen right after August 4, when the bills mature, because they don’t have a grace period.”

(….)

S&P is not the first agency to say it will downgrade the United States if a payment is missed. Rival credit rater Moody’s on June 2 was the first to say it would downgrade the United States shortly after a possible ceiling-related default, but not as deeply — to the Aa range.

S&P has already downgraded the U.S. credit outlook to negative.

Meanwhile, Congress is about to go on recess and there are 34 days left until we hit the August 2nd deadline.

 

 

FILED UNDER: Congress, Deficit and Debt, Economics and Business, Quick Takes, US Politics
Doug Mataconis
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. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. legion says:

    Let’s see. Anyone who talks about the deficit without allowing for tax/revenue increases isn’t actually serious about the deficit.

    Anyone who talks about improving the US economy without trying to stimulate job creation isn’t actually serious about fixing the economy.

    Anyone who talks about fiscal responsibility while even using default as a bargaining ship is not serious about fiscal responsibility.

    At what point do we stop considering the GOP to be a serious political entity, rather than just a bunch of greedy, entitled children?

  2. Herb says:

    If the House Republicans don’t deal, they’re going to look really bad if this happens. They claim their big concern is the deficit.

    Good luck handling an exploding deficit with a junk credit rating…

  3. Pug says:

    The GOP doesn’t take the deadline seriously and quite a few Tea Partiers actually want a default.

    Looks like it is going to take a huge negative response from the financial markets, like in 2008, before they come to their senses. By then it may be too late.