The international rating agency Fitch has warned that delaying the decision to increase the government debt ceiling could lead to a downgrade of the US sovereign credit rating, which is currently at the maximum AAA level.
The US State Treasury, commenting on the agency’s warning, said that the situation requires an immediate permanent or temporary increase in the bipartisan public debt ceiling in order to avoid a needless crisis.
US law limits the ability of the federal government to borrow money to finance its activities. At the same time, the state debt limit is set not as a percentage of the gross domestic product, but as a final amount. Therefore, every time the size of the national debt approaches the limit, the consent of the House of Representatives and the Senate is required to increase it.
This event often becomes the subject of bargaining, dragging on until the last moment. Over the past decades, major public debt crises have occurred in 1995, 2011, 2013 and 2021.
The current crisis began on January 19, when Republicans demanded federal spending cuts in exchange for higher debt, while the Biden administration refused to negotiate.
Since then, US Treasury Secretary Janet Yellen has introduced “extraordinary measures” to avoid a default situation. According to Yellen, these measures will exhaust themselves by June 1. According to analysts, the state treasury can stretch them until June 15, but in this case the country will enter the “risk zone” in which unforeseen circumstances can trigger serious problems. If by this date the debt ceiling is not raised, the US will be guaranteed to be forced to default, since it will not be able to service debts on government bonds.
At the same time, it is possible that the parties agree on a short-term increase in public debt in order to get a delay for further negotiations.