Flirting With Debt Ceiling Threatens US Credit Rating

© REUTERS / Joshua RobertsU.S. President Barack Obama departs after a news conference in the State Dining Room at the White House in Washington, October 2, 2015
U.S. President Barack Obama departs after a news conference in the State Dining Room at the White House in Washington, October 2, 2015 - Sputnik International
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The inability of the United States to make payments on its debt obligations to foreign countries as a result of not raising the country’s debt ceiling will affect negatively how investors perceive US credit-worthiness, experts told Sputnik on Friday.

WASHINGTON (Sputnik), Thomas Zimmer — On Thursday, White House Press Secretary Josh Earnest warned the United States will not be able to pay its bills if the US Congress does not increase the country’s debt ceiling by November 3.

"Even if [the US] Treasury could prioritize certain payments like interest, not paying other obligations would still hurt investor's view of US credit-worthiness," US Naval Academy Associate Economics Professor Ahmed Rahman said.

Rahman pointed out that the US credit rating downgrade in 2011 by Standard & Poor’s provides an example of what happens when the US Treasury only "flirted" with not paying down its debt obligations.

"If the debt ceiling is not raised, I believe something similar will occur. In this case, the United States may have to delay interest payments on debt, and this would constitute default," Rahman explained.

There is "no doubt" a default would lead to a US credit downgrade by all credit rating agencies, Rahman concluded.

US fiscal responsibility group The Concord Coalition Executive Director Bob Bixby told Sputnik on Friday that the US Congress will likely come to some agreement to pay the country’s debts.

"If, however, the United States has to delay paying some bills, there could be a negative effect on its credit rating," Bixby said.

The extent of the reaction, Bixby noted, is difficult to judge because the United States can pay its debts, but may be prevented to do so because of political reasons.

"This is not a situation like Greece. The problem is entirely political. What we're facing in Washington is not economic chaos, but political chaos," Bixby pointed out.

Bixby pointed out the credit ratings that judge actions by the United States to pay its debt never account for the political challenges these decisions face in the US Congress.

The United States needs to seek a long-term strategy to address its ever growing debt and end the debt ceiling debate once and for all, University of Illinois at Urbana-Champaign Leiby Hall Endowed Chair and Economics Professor Firouz Gahvari told Sputnik on Friday.

"What is most needed, and the ratings are only a reflection of that, is a comprehensive and long-term policy measure to address the debt issue, and not a haphazard and continual debate on raising the debt ceiling," Gahvari said.

Gahvari observed that uncertainty over the resolution of the continued US debt ceiling debate will not lead to any positive outcome.

"A mere ‘resolution’ of the impasse/debate that lacks any indication of a resolve on the part of the administration and the Congress to do something to curb the rising debt — whether it is through expenditure cuts or raising taxes — is not going to be helpful either," Gahvari concluded.

On October 7, US House of Representatives Speaker John Boehner said that lawmakers had not reached an agreement to raise the debt ceiling despite ongoing talks.

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