2023-05-25 00:46:18
Updated
Debt ceilingUS Default Risk: Political Attacks and “On Watch” Rating
As the clock continues to tick for a debt deal, ratings agency Fitch has placed the US AAA rating on “watch”.
White House spokeswoman Karine Jean-Pierre on May 24, 2023.
Getty Images via AFP
About a week before a possible American default, as negotiations between the White House and the Republican opposition turn sour, the rating agency Fitch has placed the United States’ AAA rating “on review”, the as high as possible. “Failure to reach an agreement (…) would be a negative sign in terms of governance in general and the willingness of the United States to honor its obligations on time,” Fitch said in a statement on Wednesday.
The agency takes a dim view of the “political tensions that hamper” the negotiations, but still assures “to expect a resolution in time”.
Despite days and nights of discussions, President Joe Biden’s teams and Republican camp negotiators have yet to find a budget compromise.
“This is a fabricated crisis,” said White House spokeswoman Karine Jean-Pierre on Wednesday, castigating the Conservatives’ refusal in Congress to vote to raise the debt ceiling, an essential maneuver to avoid a bankruptcy.
While the teams of advisers on both sides count the billions and dissect the budget items, she attacked the right wing of the Republican Party. “They are now saying out loud what they think in a whisper, talking regarding holding the financial credibility of the United States hostage,” she accused, referring to recent remarks by a radical right elected official. in the House of Representatives.
“Not my fault”
The Democratic president made his Republican opponent Kevin McCarthy, boss of the lower house, a proposal on certain expenses which would reduce the federal government’s bill by “more than 1000 billion dollars over ten years” according to the White House. This would come on top of the deficit reduction already promised by Joe Biden, which amounts to 3 trillion over ten years.
The White House is ready to cap public spending for two years, where Republicans are asking for a longer period. “I think we can make progress today,” assured Kevin McCarthy on Wednesday, while once once more criticizing Joe Biden’s approach to this issue. “It’s not my fault that the Democrats can’t renounce their spending,” he said, once once more criticizing the government for having waited until the last moment to negotiate.
The American president had initially simply ruled out discussing under the threat of bankruptcy. He has now also offered to reallocate funds that were originally earmarked to respond to the Covid-19 pandemic.
Treasury Secretary Janet Yellen once once more recalled on Wednesday that it was urgent for Democrats and Republicans to find a budget compromise so that Congress can vote to raise the public debt ceiling.
June 1st
The Conservatives condition their vote on an agreement on a cut in public spending. If the Congress – divided between the Democratic Senate and the Republican House of Representatives – does not act, “it seems almost certain that we will not be able to hold out any longer than the beginning of June”, recalled Janet Yellen.
In particular, said Janet Yellen, the organization of “our payment system (which) was put in place to pay the bills” of the government, “not to decide which bills to pay or not”, thus leaving the Treasury no margin to put, for example, debt-related payments first, at the expense of other payments. Without an agreement, “we will default on some of our obligations and this is not something acceptable”, she insisted.
From June 1, the United States might therefore find itself in default of payment, that is to say unable to honor its financial commitments, whether in terms of salaries, pensions or reimbursements to their creditors.
The Secretary of the Treasury added that her services would provide Congress with additional details very soon regarding the date on which the country will actually be in default. This unprecedented scenario would, according to economists, be synonymous with a massive recession and market rout in the United States, with possible contagion to the entire global economy.
(AFP)
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