Credit raters split on debt limit dangers

Credit raters are split on whether the nation’s debt limit poses a threat to the United State’s credit rating.

Moody’s Investors Service said Wednesday that it believes the pending return of the nation’s debt limit, and any subsequent drama emanating from the fight to raise it, will not lead to a downgrade of the U.S.’s AAA rating.

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That statement came briefly after another major rater, Fitch Ratings, called the debt limit debate a “key driver” in the fate of their rating.

The two are split over the issue that previously led to the first-ever downgrade of the nation’s rating from the third major rater, Standard & Poor’s

In a statement, Moody’s said it believes policymakers will boost the $16.7 trillion cap before a default occurs. But even if lawmakers failed to give the government more borrowing room, Moody’s is confident the U.S. would never default on its bonds, even if it means missing other government payments.

“Moody's believes the Treasury would give interest payments high priority in the unlikely event the debt ceiling is not raised,” it said.

That assertion runs counter to the public claims of Treasury Secretary Jack Lew, who has insisted repeatedly that the government does not have the ability to prioritize certain payments over others if there is not enough money to go around.

But that has not stopped several Republicans from offering legislation that would require the Treasury to prioritize payments, and Moody’s comment indicates the belief that if push really came to shove, Treasury would find a way to avoid an actual default on U.S. debt.

Moody’s added that if the debt limit were not raised and such drama roiled markets, it would be temporary and have a limited impact on the economy.

That sanguine perspective runs counter to a statement put out earlier in the day by Fitch in which the rater chided policymakers for repeatedly making the government’s ability to borrow to pay its bill an open question.

“Repeatedly casting uncertainty over the full faith and credit of the US risks undermining confidence in the role of the US dollar, having a detrimental effect on the economy, and is not a characteristic typical of a 'AAA' sovereign,” the rater said.

Fitch added that while it too is confident the U.S. will raise the rating in time, the outcome of the debt limit debate will be a “key driver” in its decision whether or not to downgrade the U.S.

The U.S.’s rating is currently on “ratings watch negative” by Fitch, which means there is a 50 percent chance it could be downgraded. Fitch is due to review the rating on March 21, but could do so sooner “to reflect developments and events.”

Moody’s has the U.S. rating on a stable outlook.