The U.S. will lose its Triple-A rating if it violates the debt ceiling, even if it quickly acts to meet its obligations, rating agency Moody’s Investors Service warned Tuesday.
The U.S. is facing a looming deadline to raise the debt ceiling, and there’s concern that despite the insistence of figures including Treasury Secretary Steven Mnuchin and House Speaker Paul Ryan, it won’t get lifted in time. The Treasury has estimated it will reach the debt limit by Sept. 29.
In a question-and-answer document published Tuesday, Moody’s Investors Service said the “Treasury would prioritize interest payments over other expenses to preserve the full faith and credit of the government, and to avoid disruptions in the financial markets.” The prospect of large and politically sensitive cash payments for items including Social Security benefits, Medicare and Medicaid benefits, and military personnel wages are “likely to force a timely increase in the debt ceiling.”
“In the unlikely event of an interest payment not being made as a consequence of the debt ceiling, we would expect the default to be short-lived and to be cured with a recovery rate of 100%,” the rating agency said.
But the lasting issue would remain. “A subsequent upgrade would be unlikely while the institution of the debt ceiling, and the political environment which had given rise to the missed payment, remained in place,” Moody’s says.
The other major rating agency, Standard & Poor’s, stripped the U.S. of its Triple-A rating in 2011 after a similar standoff. The Government Accounting Office estimated the delay in raising the debt limit in 2011 led to an increase in Treasury’s borrowing rates of at least $1.3 billion.
Source: MarketWatch
