Stalled Debt Ceiling Debate Will Have Catastrophic Effects

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Following the last minute deal approved by the Republican-led House of Representatives regarding the fiscal cliff and tax changes, politicians in Washington are now looking forward to the next round of deadline driven negotiations, chiefly the need to raise the debt ceiling.

House Republicans have fully acknowledged that it is widely accepted that they lost the negotiations over the fiscal cliff by allowing the president to raise taxes on the wealthiest Americans while receiving very little in return — be that through tax cuts or budgetary reforms.

Many Republicans will be pushing for a partial government shutdown, which could result in the U.S. defaulting on some of its debt payments. President Obama has made mention of the upcoming round of negotiations by saying,

“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they’ve passed. We can’t go down that path again.”

The American people can expect the fight over the debt ceiling to play out just as it did just this last year, but what is unclear is if this new battle will have any effect on the United States credit rating.

In 2011, Standard & Poor’s, one of the three largest credit rating agencies in the world, downgraded the United States credit rating from AAA to AA+. While Moody’s Analytics and Fitch have remained firm in maintaining a AAA rating for the United States, that could change following a lengthy fight over whether or not the United States will make good on the debt it has accrued.

As many economists have pointed out, these three credit agencies can have a massive impact on market sentiment.

The financial market is highly based in sentiment and outlook. When one of these major credit rating agencies changes the outlook for an entire country even slightly, it can have drastic effects on the market as many American investors found out last year.

Should this new round of debt ceiling negotiations give way to a further downgrade of the nation’s credit rating from Standard & Poor’s, or another rating agency like Fitch follows suit in the downgrade, the impact could be catastrophic.

Given the current Congress’ history of partisan squabbling over the debt ceiling, it is not unreasonable to suggest that these agencies are beginning to view the United States in a less favorable light in regards to its willingness to pay back its debt.

The behavior of the representatives directly impacts this view. In the past, Moody’s has threatened to review America’s AAA rating if a deal could not be reached regarding the debt ceiling, this round will be no different.

Critics have been quick to point out that the clout these credit agencies wield is far too great, which should come as a warning to the current Congress.

Should it fail to come to a deal, not only will the United States and its citizens be looking at a partial or even total government shutdown, as well as a default on its debt payments, but the long term effects of further downgrades to the country’s credit rating will be unbearable to an already struggling economy.

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  1. Tristan Cody If you pay attention to the market, it goes up when people feel we are moving towards certainty and then declines when we pull towards uncertainty. This means that we must stop this back and forth power struggle, admit that we all need to become one to fix the modern dilemmas and hep give the people some sense of security. I, myself, would like to have some certainty when it comes to the idea that my (not yet existing) children can have a future.
  2. Jenny Jo Coming together? Both sides are already the same, how is that not obvious? You speak of future, in America... Good luck to you, and your family in a nation that dissolves Habeus Corpus on the books, and then offers some guy's "promise" that the law will not be used. I'm sure they legalized indefinite detention for the heck of it. Good luck living somewhere they are going to be using drone pathing soon, with high def video and audio streaming back to a database, recording every square inch of ground, public and private, behind your fences, the walls of your home, and bedrooms. How long until the drones are armed? Good luck being forced to buy products the government decides you need. Good luck living somewhere you are not allowed to record police activity, even if they are beating someone to death. Good luck living somewhere that corporations buy and sell politicians like Capitol Hill is Craigs List. Good luck getting strip searched before you travel on public transportation, and soon, at state border crossings. Good luck my friend... you are going to need it, for these are just the changes of the past decade. I truly weep for the children who have to be born, and even some of the young ones now, because it will get much worse in their lifetime. Those people will not even know the definition of the word "free"... merely a twisted and contorted version of whatever the government controlled education system teaches them... I can tell you one thing, this is not the America I was born into.
  3. Timothy Francis 1350 days since the senate passed a budget. This should be considered an act of treason. Or even unpatriotic. At the least, insubordination. We keep making amendments and resolutions to the last budget passed to justify our spending. This has been the most dysfunctional government ever in the history of this nation.
  4. Jenny Jo Unfortunately, enough people disagreed with you to re-elect it. More broken promises, more invasion of privacy, more destroyed rights and amendments than any other administration in history, yet the sheep are blinded to axe above their heads. Not say the other side would have been any better.. the global elite have this country on lock.. 2 party system, both sides of the same coin, bought and sold, and the people are oblivious.
  5. Ronald Burris Do you think they want to crash the dollar it is not backed by anything since the US went off the gold standard, and want to go to a one world currency, Those in Washington have bankruped this great United States. While putting their fortunes in off shore accounts. Must be nice to be able to do that. CROOKS
  6. Gerry Feldman Hey, maybe if e stopped paying congress, that would help...
  7. Luke Enoch The US prints it's own money... So why does it matter about the US credit rating? A country with ~300million population and 1/4 of the world's GDP doesn't need credit. Besides, the debt ceiling isn't a problem in a liquidity trap- just input some dollars into the magical government computers and the debt is gone with no other effects.
  8. Dave Wildon People like this really ARE trying to thrash the economy.. You are basically saying that because we are who we are, we can manipulate anything about our currency and everything will be peachy it. You can't possibly be serious with your comments. Why do you think no one wants to touch a Yuan yet? Because China does the exact thing you speak of... Thankfully your input doesn't decide spending in the US.. You would see hyperflation like never before, and the world would immediately drop us as the reserve currency. It's almost like you people WANT the US economy to crumble.
  9. Bob Mack Juan... please research the last time a budget was passed into law.. then come back and apologize for your party and your ignorance. Thank you for your attention...
  10. Dave Wildon And hyperinflation, followed by a deflationary crash would be imminent as soon as they release all that money the fed has been printing for the past 4 years.
24 comments
Tristan Cody
Tristan Cody

If you pay attention to the market, it goes up when people feel we are moving towards certainty and then declines when we pull towards uncertainty. This means that we must stop this back and forth power struggle, admit that we all need to become one to fix the modern dilemmas and hep give the people some sense of security. I, myself, would like to have some certainty when it comes to the idea that my (not yet existing) children can have a future.

Timothy Francis
Timothy Francis

1350 days since the senate passed a budget. This should be considered an act of treason. Or even unpatriotic. At the least, insubordination. We keep making amendments and resolutions to the last budget passed to justify our spending. This has been the most dysfunctional government ever in the history of this nation.

Ronald Burris
Ronald Burris

Do you think they want to crash the dollar it is not backed by anything since the US went off the gold standard, and want to go to a one world currency, Those in Washington have bankruped this great United States. While putting their fortunes in off shore accounts. Must be nice to be able to do that. CROOKS

Gerry Feldman
Gerry Feldman

Hey, maybe if e stopped paying congress, that would help...

Luke Enoch
Luke Enoch

The US prints it's own money... So why does it matter about the US credit rating? A country with ~300million population and 1/4 of the world's GDP doesn't need credit.

Besides, the debt ceiling isn't a problem in a liquidity trap- just input some dollars into the magical government computers and the debt is gone with no other effects.

Bob Mack
Bob Mack

Juan... please research the last time a budget was passed into law.. then come back and apologize for your party and your ignorance. Thank you for your attention...

James Reynolds Jr
James Reynolds Jr

I rather see cuts in spending, but I expect the debt cieling to be raised

Juan Oscar
Juan Oscar

1. the senate hasnt passed a budget for three years, not a peep about that from the media or the president. 2. the spending democrats own it, republicans been talking about it for years, the conservative ones. 3. obama blasted bush for spending 4 trillion in 8 years, Obama has spent and wasted 6 trillion in one four year term,, where is his outrage on himelf? or the media's outrage? tea party was sent to cut the waste, but get demonized by democrats, liberals, and the w.h. so when ya serious about cutting spending ask tough questionS to the W.h. and support the tea party!

G Bud Budlong
G Bud Budlong

there is no problem...the Treasury has complete authority to cover ALL debts authorized by the government. This is smoke and mirrors and nothing else. They will issue funds to cover our debts and the media is just scaring the poor weak Sheeple

David Holt
David Holt

Congress created laws that spent the money already. They need to man-up and release the funds, or change the spending. If they don't, Obama should definitely mint platinum coin(s) as needed.

La'Dene Bean
La'Dene Bean

No, the Republican Terrorist will destroy America at all costs ~

Patrick Gossett Hffhstuff
Patrick Gossett Hffhstuff

Moody's has already said UNLESS MEASURABLE CUTS ARE MADE they will now downgrade.

It has nothing to do with default .

We shut the Gov down during Clinton years and it didn't cause a downgrade..

Patrick Gossett Hffhstuff
Patrick Gossett Hffhstuff

Here we go S&P did not downgrade because of the debt ceiling debate or any default.

They down graded our credit rating because there was no effort to cut spending.

They say it right on those website.

http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245316529563

We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.We have also removed both the short- and long-term ratings from CreditWatch negative.The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

Jason Harsha
Jason Harsha

We should be downgraded no matter what happens. We avoided the so called cliff with some BS tax tricks when we would have been better off going over the cliff. We still have spending that outpaces taxes to the point that we have to borrow more money each year to pay off the debt from the year before. It's like taking out a new credit card to pay off the old one. At some point, you have to stop spending your discretionary funds and put them towards your debt. We are already over the cliff and simply in free fall, that's why we don't feel it yet, but the ground is coming up fast.

Larry Scheer
Larry Scheer

you are uncommonly generous to call them "our leaders in washington." better called "elected officials."

Michael Higham
Michael Higham

Cut spending, raise the debt ceiling, or government shutdown and not pay debts. Of those three options, cut spending seems like the easy and most effective option. Why can't our govt. leaders focus on that. It doesn't have to be the drastic cuts from sequestration but they'll have to start somewhere.

Jane Susskind
Jane Susskind

In my opinion, the fact that we are even debating whether or not we should pay what we have already spent is makes the US look unfavorable and will effect not only our credit rating, but if others want to lend us money in the future. And in the case that Congress can't come to a reasonable agreement, it will effect all of us.

Lucas Eaves
Lucas Eaves

I really do believe that partisan disagreements are legitimate concerning future spending by the government. But it cannot in anyway disagree on paying what has already been spent. This is non sense.

Jenny Jo
Jenny Jo

Coming together? Both sides are already the same, how is that not obvious? You speak of future, in America... Good luck to you, and your family in a nation that dissolves Habeus Corpus on the books, and then offers some guy's "promise" that the law will not be used. I'm sure they legalized indefinite detention for the heck of it. Good luck living somewhere they are going to be using drone pathing soon, with high def video and audio streaming back to a database, recording every square inch of ground, public and private, behind your fences, the walls of your home, and bedrooms. How long until the drones are armed? Good luck being forced to buy products the government decides you need. Good luck living somewhere you are not allowed to record police activity, even if they are beating someone to death. Good luck living somewhere that corporations buy and sell politicians like Capitol Hill is Craigs List. Good luck getting strip searched before you travel on public transportation, and soon, at state border crossings. Good luck my friend... you are going to need it, for these are just the changes of the past decade. I truly weep for the children who have to be born, and even some of the young ones now, because it will get much worse in their lifetime. Those people will not even know the definition of the word "free"... merely a twisted and contorted version of whatever the government controlled education system teaches them...

I can tell you one thing, this is not the America I was born into.

Jenny Jo
Jenny Jo

Unfortunately, enough people disagreed with you to re-elect it. More broken promises, more invasion of privacy, more destroyed rights and amendments than any other administration in history, yet the sheep are blinded to axe above their heads. Not say the other side would have been any better.. the global elite have this country on lock.. 2 party system, both sides of the same coin, bought and sold, and the people are oblivious.

Dave Wildon
Dave Wildon

People like this really ARE trying to thrash the economy.. You are basically saying that because we are who we are, we can manipulate anything about our currency and everything will be peachy it. You can't possibly be serious with your comments. Why do you think no one wants to touch a Yuan yet? Because China does the exact thing you speak of... Thankfully your input doesn't decide spending in the US.. You would see hyperflation like never before, and the world would immediately drop us as the reserve currency. It's almost like you people WANT the US economy to crumble.

Dave Wildon
Dave Wildon

And hyperinflation, followed by a deflationary crash would be imminent as soon as they release all that money the fed has been printing for the past 4 years.