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Fitch puts US rating on negative watch on default fears
by Danielle Levy on Oct 16, 2013 at 07:36
Ratings agency Fitch has placed the US's AAA rating on negative watch, as debt ceiling negotiations step up ahead of the all important Thursday deadline.
Fitch expects to resolve the negative rating watch by the end of the first quarter next year, but said timing would reflect developments and events, including the duration of any agreement to raise the debt ceiling.
Of significant concern, Fitch said the US authorities had not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures.
'The US Treasury Secretary has said that extraordinary measures will be exhausted by 17 October, leaving cash reserves of just $30 billion. Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default,' the agency said.
'The Treasury may be unable to prioritise debt service, and it is unclear whether it even has the legal authority to do so. The US risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens - all of which would damage the perception of U.S. sovereign creditworthiness and the economy,' Fitch added.
The news comes as talks reopened in the Senate on Tuesday evening, but the chances of the US missing its Thursday’s deadline to raise its $16.7 trillion borrowing capacity increased after House Republican leaders quashed a plan to raise the debt ceiling earlier in the day, which would have raised the ceiling until February and ensured the government was open until mid-December.
In spite of efforts to win the support of rank-and-file members for the plan, which was amendedseveral times, it faced opposition from conservatives and Democrats. Tea Party-backed conservatives felt the bill did not do enough to challenge Barack Obama’s signature 2010 healthcare law. Meanwhile, the Democrats and the White House opposed any changes to the 'Obamacare' law.
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