Another credit downgrade coming with the debt ceiling fight?

The treasury department is currently engaging in extraordinary measures of moving money around to meet the government’s commitments.  Congressional Republicans are finalizing a list of requirements they will demand that the administration meets in order to ensure their cooperation.   However, bond rating agencies have already stated that another round of fights may trigger another credit downgrade of U.S. Treasuries.   Is another credit downgrade coming with the upcoming debt ceiling fight?

Counter arguments have been made by some U.S. politicians that not increasing the debt limit will not be as dire as predicted because Congress could authorize payment of principal and interest on existing U.S. debt, while not paying other obligations in other areas.   However, bond rating agencies such as Fitch has indicated that such a ploy may basically be considered a thinly veiled default and may well still trigger a review of the Government’s credit rating.   Their view is that this is nothing more than debt prioritization, which pays certain obligations but not others, and is just another term for default.

Politicians have already shown that they are apparantly willing to use the debt ceiling to score perceived short term political points on an issue that will be forgotten in a few weeks at the expense of the nation’s credit, rather than compromise, or at least make it a priority not to fight on such a critical issue.   The nation’s credit deserves far better than this from both parties.  It appears that the extreme wings in both parties are driving the debate to a head.

Another major danger in this type of fighting is that the debt limit has to be increased every few months, or roughly every year at the longest because it is only increased by a relatively small percentage on each occasion.  If the branches of Government would agree on a plan to raise the debt ceiling ongoing by an agreed set of circumstances, these credit downgrade threats would largely go away.

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