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The rating agency Fitch is somewhat more critical of the creditworthiness of the world’s largest economy and signaled a possible downgrade on Wednesday evening (local time). The credit watchdog kept the top AAA rating but downgraded the credit outlook to negative, which could mean a downgrade.
Fitch justified the decision with the ongoing dispute over raising the debt ceiling and the impending bankruptcy as a result. In the meantime, there are still no signs of a quick solution to the conflict between Republicans and Democrats.
Unprecedented US government default looms
In the United States, Parliament, not the government, decides how much money the state can borrow. For weeks, the two parties have been arguing about raising the debt limit in tough rounds of negotiations. According to forecasts by the Treasury Department, a historically unprecedented default by the US government is imminent from the beginning of June. If it really came to that, it could result in a global financial and economic crisis. In the United States, economists and labor market experts fear, millions of people could lose their jobs as a result.
Fitch is one of the top three rating agencies alongside Moody’s and Standard & Poor’s. As early as 2011, a Republican majority in the US Parliament had delayed raising the debt limit for so long that the US credit rating was downgraded for the only time in history. At the time, Standard & Poor’s dropped the top rating of “AAA” and has since rated the USA at “AA+” – one rating lower.
No solution expected
According to Fitch, a solution to the debt dispute is still expected. However, it is believed that the risk has increased that the debt ceiling will not be raised in time and that the US government will no longer meet its payment obligations. “The dispute over the debt ceiling and the US authorities’ failure to seriously address the medium-term fiscal challenges that will lead to rising budget deficits and growing debt burdens signal downside risks to US creditworthiness,” Fitch said.
Further negotiations between Democrats and Republicans on raising the debt ceiling remained fruitless on Wednesday. The Republicans want to force the Democrats to make savings in return for an increase, for example in the social sector. President Joe Biden’s Democrats, on the other hand, argue that the money will not fund new spending – it will serve to meet commitments already made. Therefore, it is the duty of Congress to raise the debt ceiling.
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