By Peter Schroeder - 04/07/11 05:30 PM EDT
The Treasury Department has informed lawmakers it expects to hit the limit by May 16 and would end up defaulting on its debt by July 8, after exhausting all options to stave off that event — one Treasury Secretary Timothy Geithner has warned would be "catastrophic."
In fact, Fitch said the larger threat to the nation's "AAA" credit rating — the highest possible — is if lawmakers cannot agree on a broader plan to get the federal deficit whipped into shape.
"The brinkmanship over the debt ceiling and the 2011 budget will be resolved. Of greater threat to U.S. financial stability and its 'AAA' status would be the failure to agree on a credible medium-term fiscal consolidation strategy as economic recovery becomes more secure," said David Riley, head of sovereign ratings at Fitch.
If the federal government fails to reduce that deficit and control its public debt, it could weaken investor confidence in U.S. debt, which in turn would have an adverse impact on that top rating.
Geithner has tried to impress upon lawmakers the importance of raising the debt limit, warning that if the government hits it, eventually it would no longer be able to issue debt to meet previous obligations. That failure could result in a default on U.S. obligations for the first time in history, which would shake confidence in financial markets and lead to higher borrowing costs across the country, he has warned.