Credit agencies issue warnings on debt-payment delay

[Geee]

Washington Times:

With signs multiplying that debt-reduction talks between the White House and Congress are at an impasse, Wall Street credit agencies are stepping up their warnings that even a temporary delay in making payment on the government’s $14.3 trillion of debt will result in a significant cut in the nation’s perfect credit rating.

In unusually frank statements about the consequences of congressional inaction last week, Moody’s Investors Service said it anticipates a cut from AAA to AA if the impasse leads to even a brief suspension of debt payments after the Treasury effectively reaches its borrowing limit Aug. 2. And Standard & Poor’s warned that it would go further and plunge the U.S. rating to the lowest possible rung — a “D” for default.

“If any government doesn’t pay its debt on time, the rating of that government goes to D,” said John Chambers, managing director of sovereign ratings at S&P, in an interview with Bloomberg Television.

But he quickly added that because of that very real consequence of default, among others, he expects the dramatics and disagreements over the debt limit will ultimately be resolved in time and that Congress will once again raise the nation’s borrowing limit as it has 78 times before since 1960 — “often at the last minute.”

A junk rating of D would make it impossible for the U.S. to finance its debt, much less add more on top of it, since the world’s major pension and investments funds generally are not allowed to invest in debt rated that low. Few other funds — even China’s vaulted $3 trillion of foreign-exchange reserves — have enough money to absorb the mammoth amounts of debt issued by the U.S.

But even a lesser cut in the credit rating such as that envisioned by Moody’s would force the government to pay higher interest rates on Treasury bonds and notes.

[Sanguine]

Helping to put pressure on the recalcitrant Republicans. No talk of cutting spending.