Economic Crisis Looms As Memory Fades

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NEW YORK, N.Y. – Fitch Ratings said this week that it will conduct a formal review of the United States’ sovereign credit rating if Congress fails to raise the debt ceiling in a timely manner.

On Dec. 31, the federal government reached its current statutory debt limit of $16.394 trillion dollars and the Treasury has begun implementing extraordinary measures. Should Congress stage a repeat of the 2011 debt ceiling crisis, Fitch is likely to lower the nation’s credit rating.

“In Fitch’s opinion, the debt ceiling is an ineffective and potentially dangerous mechanism for enforcing fiscal discipline,” the company said in a Jan. 15 press release. “It does not prevent tax and spending decisions that will incur debt issuance in excess of the ceiling while the sanction of not raising the ceiling risks a sovereign default and renders such a threat incredible.”

A Fox News broadcast misreported Fitch’s downgrade warning was made because of statements by President Barack Obama at a Jan. 14 news conference where he said that he would not negotiate with Congress over raising the debt ceiling.

However, Congressional Republicans are the ones who are insisting on using the debt ceiling to meet their objectives. Pennsylvania Sen. Pat Toomey said on an MSNBC broadcast earlier this month, “We Republicans need to be willing to tolerate a temporary, partial government shutdown” in order to achieve spending cuts and entitlement reforms.

The United States currently enjoys ‘AAA’ credit status from Fitch, though the global ratings agency has attached a Negative Outlook to it. Should Congress fail to reach a credible medium-term deficit reduction plan that is consistent with sustaining economic recovery, Fitch will likely downgrade the nation’s credit rating even if another debt ceiling crisis can be prevented, the company said.

 


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