Moody’s Warns that U.S. Won’t Be Able to Regain High Credit Rating if It Defaults
All three major credit rating agencies have now warned the American government to take action or face the consequences.
Ratings agency Moody’s Corporation is the latest to have warned that the United States will lose the agency’s highest credit rating if the government defaults on its sovereign debt. The country may not be able to regain that rating even if the default is resolved.
Moody’s currently awards U.S. Treasury debt the highest possible investment-grade rating of “Aaa”. However, with the debt ceiling deadline approaching, fears are looming that America may default on its obligations if it doesn’t raise the ceiling in time.
The debt ceiling currently hovers above $19.9 trillion. Once America exhausts this federally mandated maximum limit of debt issuance, it will not be able to issue more debt unless the ceiling is raised. In that event, the country may not have the money to pay off its obligations coming due next month when the deadline is reached.
If the government defaults on its debt, it loses its long-held status of “safest sovereign debt investment.”
In a report published by Moody’s on Tuesday, one ratings analyst said, “An upgrade back to Aaa would be unlikely while the institution of the debt ceiling, and the political environment that gave rise to the missed payment, remained in place.”
Prior to Moody’s Corporation’s warning, the other two major ratings agencies—Standard & Poor’s Financial Services LLC (S&P) and Fitch Ratings, Inc.—also warned of ratings cuts.
Last week, S&P warned that the U.S. may lose its AA+ rating if it fails to prevent a default. Likewise, Fitch recently announced that it would have to review its U.S. debt rating of AAA if the government failed to raise its debt ceiling in time. Fitch warned that the review will possibly have negative implications, hinting that the agency will cut its ratings if the government failed to find a timely resolution to the debt ceiling crisis.
The debt ceiling deadline falls in mid-October, but investors have their fingers crossed in hopes that the federal government will raise its debt ceiling before that.
“U.S. won’t regain Aaa-rating after any default: Moody’s,” Reuters, September 5, 2017.