US debt dispute: Rating agency threatens USA with downgrading of top rating

US debt dispute: Rating agency threatens USA with downgrading of top rating

Democrats and Republicans negotiate every day – but a solution to the debt dispute is not in sight. This threatens the creditworthiness of the United States. A rating agency sends a warning signal.

The bitter dispute over the US debt limit threatens the creditworthiness of the USA. 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.

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 leading rating agencies

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.

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.

Negotiations still unsuccessful

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.

The Democrats have now said they want to force a vote in the Republican-controlled House of Representatives with a petition. With this move they want to bypass the Republican chairman of the chamber, Kevin McCarthy, and make a vote on their bill possible. One has the signatures of all democratic MPs for such a project together, it said from the top of the group. However, the effort is given little chance of success, since the Democrats are missing five signatures from the Republicans for a majority in the House of Representatives. It is currently considered unlikely that there will be enough Republicans to support the project with their signatures.

Meanwhile, the Republican leadership in the House of Representatives is sending their MPs into the long weekend starting Friday – Monday is a public holiday in the United States. However, she made it clear that parliamentarians can be called back to a possible vote. Should an agreement be reached in the dispute, this would first have to be cast in text form anyway. The members of the chamber would then also have three days to read the draft before voting.

Source: Stern

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