Yesterday, Fitch became the latest credit rating agency, following S&P and Moody’s in recent weeks, to warn the U.S. of a credit rating downgrade if we fail to raise the debt ceiling by August 2nd. David Riley, head of Fitch’s sovereign rating says, “Failure to raise the debt ceiling in a timely manner would imply a crisis of governance that could imperil the US’s triple-A status”.
The latest warning shows the dilemma we face in raising the debt ceiling. Being downgraded to Aa due to lawmakers inability to raise the debt ceiling by August 2nd would be a bigger blow than being downgraded to a negative outlook due to our unsustainable path. As a result, this is further proof that investors are on shaky ground when it comes to the United States' fiscal situation and how imperative it is to raise the debt limit.
While there are ways to responsibly use the debt limit negotiations being led by Biden
as a mechanism for getting some control over our fiscal path (be it a fiscal plan, caps, triggers, targets, or a downpayment), it is very risky to be playing chicken with the debt ceiling. Click here for more ideas on responsible ways to raise
the debt ceiling.
Also be sure to follow Treasury's use of extraordinary measures to delay a default this summer here.