Debt Limit İmpasse Risks US Credit Rating: Expert

The U.S. may face a potential credit downgrade if it does not raise the federal debt limit in a timely manner, the Bipartisan Policy Center's director of fiscal policy told Anadolu Agency.



There is concern Congress is not currently considering the debt limit as an agenda item, Shai Akabas said.



The federal debt ceiling went back into effect at $19.8 trillion March 16 when the period in which Congress suspended any legal limit on the federal debt expired.



By suspending the debt limit from Nov. 2, 2015, through March 15, Congress and former President Barack Obama had given the Treasury Department the authority to borrow unlimited funds until after the 2016 election.



A week before the suspension ended, Treasury Secretary Steven Mnuchin informed House Speaker Paul Ryan that "The Bipartisan Budget Act of 2015 suspended the statutory debt limit through Wednesday, March 15, 2017. Beginning on Thursday, March 16, 2017, the outstanding debt of the United States will be at the statutory limit".



When the debt hits the limit and Congress and the president do not immediately enact new legislation to increase or suspend it, the Treasury Department typically engages in what it calls "extraordinary measures" to keep the debt from going over the limit.



"The extraordinary measures have actually become pretty ordinary over the past few years because we had so many of these debt limit impasses" Akabas said, adding that it basically let Treasury exchange debt that is held in trust funds for more borrowing from the public to raise the cash to pay the federal government's bills.



Those measures include suspending sales of state and local government securities; redeeming existing and suspending new investments of the civil service retirement and disability fund and the postal service retiree health benefits fund; suspending reinvestment of the government securities investment fund and suspending reinvestment of the exchange stabilization fund, according to a Treasury Department's official website.



"By the October - November time frame, early to mid-fall, we expect that those measures will be depleted and there will be no longer additional cash to pay the bills except the taxes coming in on a daily basis, and that is not going to be enough," Akabas said.



The exact date the government would be unable to meet all of its financial obligations is unclear but when it does sometime in the fall, health care providers, social security recipients and military contractors will be among those who may not be paid on time.



Akabas said, however, that the cost and risks to the federal government and taxpayers begin in advance of a date when the Treasury will no longer be able to pay its obligations.



The uncertainty about when the government is unable to pay its debts and what will happen after that may lower the demand for U.S. securities.



"That can increase the federal government's borrowing cost, and we do not necessarily know it until later because it is hard to figure out which portion of the change borrowing cost is attributable to the debt limit. But we know that there is that risk and cost," Akabas said.



The effects could also spell trouble for the U.S.'s credit rating, similar to when S&P downgraded it for the first time from "AAA" to "AA+" in 2011, according to Akabas.



"We've heard from S&P, Fitch and Moody's and others that if there were a similar impasse this time around and policy makers take the debt limit to the brink or close to X date or beyond or we are missing payments that there could be other downgrades in order." he said. "That would be very serious because a lot of pension funds and other funds are only allowed to hold AAA rated securities. So, if rating agencies grade the US securities at some level below that, they may not be allowed to hold those funds anymore, which would be a serious situation for the U.S. economy." he added.



Akabas finds it "disturbing" the debt ceiling is not being considered at the moment but he believes other pressing issues are the current concern of lawmakers, including a health care bill to replace the Affordable Care Act, a Supreme Court nomination, wiretapping accusations and controversial travel and immigration policies.



Despite his concerns, Akabas expects the issue to be resolved in the coming months.



"I would not expect us to go beyond the X date, we never have before and I think that's pretty good precedent to over the last 100 years to indicate what might happen this time around," he said. -