S&P: We were right to downgrade

Standard & Poor's said Monday that ongoing fiscal fights in Washington are proof the agency was right to downgrade the United State's credit rating in 2011.

The U.S. suffered an unprecedented downgrade in the wake of the last major debt ceiling battle in 2011. And with a government shutdown looming and a potentially even bigger fight weeks away on the debt limit, the credit rater took a victory lap of sorts on Monday.

"This sort of political brinksmanship is the dominant reason the rating is no longer 'AAA,'" the rater said in a new report on the debt ceiling.

However, the rater also emphasized that while an upcoming showdown over the nation's $16.7 trillion borrowing cap will lead to plenty of uncertainty and market angst, it should not lead to further downgrades. The rater said it sees a less than 1-in-3 chance it will downgrade the U.S. rating again in the next two years.

However, that assumption is based on an additional assumption: that Congress will ultimately strike a deal to raise the debt limit and avoid a default. If Congress did not do that and the U.S. defaulted on some of its obligations, the rater would automatically place the U.S. under the 'SD' or selective default rating. Once the nation caught up with its bills, the U.S. would get a new rating, which based on previous defaults would sink somewhere between 'CCC+' and 'B.'

But even in previous events, S&P noted that no nation had thus far willingly defaulted on their obligations, as would be the case if lawmakers failed to strike a deal to boost the borrowing cap.

"None of these sovereign defaults have occurred because of political brinksmanship among branches of government," the rater said, adding that it would evaluate "the changes in the political and economic landscape" in determining how to rate U.S. debt after a default has been addressed.

The Treasury Department informed Congress that on Oct. 17, it will be left with just $30 billion in cash reserves, which could be insufficient to meet any given day's obligations and put the nation at a risk of default. 

Republicans are considering a range of GOP priorities as demands for raising the borrowing cap, while Democrats and the White House have refused to negotiate thus far.

But first, Congress has to find a way to avoid a government shutdown. S&P did not say whether a shutdown would impact the nation's rating, saying first it would have to evaluate exactly how the shutdown would impact the economy.