Moody's: US debt not in danger from debt limit battle

A top credit rater said Friday that the nation’s debt obligations would not be in danger, even if the nation’s debt limit is not raised in time.

In a new report, Moody’s Investors Service said it believed that if the government ran out of existing funds to meet obligations, that the Treasury Department would prioritize payments on U.S. debt above all others, ensuring the nation did not suffer a catastrophic default.

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“The periodic impasse over raising the debt limit is a negative feature of US fiscal management,” the rater said. “However, even with this feature, the ability of the government to make timely interest payments is intact.”

But that stance runs counter to the position of the Treasury Department, which has maintained that the thousands of payments the government processes at any given time is too complex a system to let officials prioritize certain payments over others.

The nation’s borrowing cap again takes effect on Monday at roughly $18 trillion, although the Treasury will likely be able to continue making all payments until sometime in the fall.

Despite the administration’s stance, the rater argued that incoming revenue to the government would be more than enough to cover those payments “for some time.”

Moody’s said in its report that upcoming interest payments over the next few months max out at 19.4 percent of incoming revenue, suggesting to it that if the Treasury really had to, the funds would be available to make debt payments, although other government programs would face significant cuts.

Moody’s added in its report that, if policymakers are unable to strike a debt limit deal in a timely fashion, those drastic cuts would drive them to strike a deal.

The nation suffered its only credit downgrade in its history, when Standard & Poor’s lowered the nation’s rating by one notch following a protracted standoff over the debt limit in 2011.

While Republicans now control both chambers of Congress, GOP leaders have maintained they are not interested in shutting down the government or defaulting on the nation’s debt.

Earlier this month, Treasury Secretary Jack LewJacob (Jack) Joseph LewHogan urges Mnuchin to reconsider delay of Harriet Tubman bill Mnuchin says new Harriet Tubman bill delayed until 2028 Overnight Finance: US reaches deal with ZTE | Lawmakers look to block it | Trump blasts Macron, Trudeau ahead of G-7 | Mexico files WTO complaint MORE told lawmakers that he was preparing to deploy his set of “extraordinary measures” once the limit returns, and called for a borrowing boost as soon as possible.