S&P warns U.S. of risks in debt ceiling battle
Standard & Poors is warning that if the U.S. defaults on a $30 billion debt payment on August 4, the nation's credit rating will be downgraded severely from its long-held AAA to a D ranking.
S&P managing director John Chambers tells Reuters news agency that, while it's an extremely unlikely outcome, such an unprecedented default on U.S. Treasuries could lead to the complete collapse of global financial markets.
"If the U.S. government misses a payment, it goes to D," Chambers told Reuters. "That would happen right after August 4, when the bills mature, because they don't have a grace period."
Chambers, along with the chiefs of the other two primary international credit ratings agencies, Moody's Investors Service and Fitch Ratings, have expressed increasing concern that the failure of Democrats and Republicans in Congress to reach a compromise and raise the U.S. debt limit may have an adverse affect on global confidence in American securities.
As Reuters notes, however, only the S&P has downgraded the outlook for the U.S. credit rating, with the agency saying there's a one-in-three chance of a downgrade in the coming two years.
Still, Chambers told the news agency he saw the likelihood of a U.S. technical default on a debt payment as "extremely low" - predicting Congress will find a compromise and raise the debt limit before the country is rendered unable to make payments, which Treasury Secretary Timothy Geithner has said would happen on August 2.
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