About a week before a possible American default, while negotiations between the White House and the Republican opposition turn sour, the rating agency Fitch has placed the United States’ AAA rating, the highest possible high. “Failure to reach an agreement (…) would be a negative sign in terms of governance in general and the willingness of the United States to honor its obligations on time,” Fitch said in a statement on Wednesday.
The agency takes a dim view of the “political tensions that hinder” the negotiations, but still assures “to expect a resolution in time”. Despite days and nights of discussions, President Joe Biden’s teams and Republican camp negotiators have yet to find a budget compromise.
“It’s a fabricated crisis,” said White House spokeswoman Karine Jean-Pierre on Wednesday, castigating the conservatives’ refusal in Congress to vote to raise the debt ceiling, an essential maneuver to avoid a bankruptcy. While the teams of advisers from both camps count the billions and dissect the budget items, she attacked the right wing of the Republican Party. “They are now saying out loud what they think in a whisper, talking about holding the financial credibility of the United States hostage,” she accused, referring to recent remarks by an elected member of the radical right. in the House of Representatives.
The Democratic president made his Republican opponent Kevin McCarthy, boss of the lower house, a proposal on certain expenses which would reduce the federal government’s bill by “more than 1,000 billion dollars over ten years” according to the White House. This would come on top of the deficit reduction already promised by Joe Biden, which amounts to 3,000 billion over ten years.
The White House is ready to cap public spending for two years, where Republicans are asking for a longer period. “I think we can make progress today,” assured Kevin McCarthy on Wednesday, while once again criticizing Joe Biden’s approach to this issue. “It’s not my fault that the Democrats can’t renounce their spending,” he said, once again criticizing the government for having waited until the last moment to negotiate.
“As Treasury Secretary Janet Yellen has been saying for months, these political acrobatics around the debt ceiling are seriously hurting American businesses and families, driving up short-term interest rates for taxpayers, and threatening the ratings of states. States,” reacted Lily Adams, a spokeswoman for the ministry, after Fitch’s announcement. “Tonight’s warning underscores the need for joint and swift action by both parties in Congress to raise or suspend this cap,” she added.
The American president had initially simply ruled out discussing under the threat of bankruptcy. He has now also offered to reallocate funds that were originally earmarked to respond to the Covid-19 pandemic. The Conservatives condition their vote on an agreement on a cut in public spending.
If the Congress – divided between the Democratic Senate and the Republican House of Representatives – does not act, “it seems almost certain that we will not be able to hold out beyond the beginning of June”, recalled Janet Yellen. In question in particular, specified Ms. Yellen, the organization of “our payment system (which) was set up in order to pay the bills” of the government, “not to decide which bills to pay or not”, thus leaving the Treasury no margin to put, for example, debt-related payments first, at the expense of other payments. Without an agreement, “we will default on some of our obligations and this is not something acceptable”, she insisted.
From June 1, the United States could therefore find itself in default of payment, that is to say unable to honor its financial commitments, whether in terms of salaries, pensions or reimbursements to their creditors. The Secretary of the Treasury added that her services would provide Congress with additional details very soon regarding the date on which the country will actually be in default. This unprecedented scenario would, according to economists, be synonymous with a massive recession and market rout in the United States, with possible contagion to the entire global economy.