Rating Agencies Watching Debt Ceiling Limit Again

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The New York Times
Saturday, December 22, 2012

Rating Agencies Watching Debt Ceiling Limit Again

By MARY WILLIAMS WALSH

The three major ratings agencies shrugged off this week’s breakdown in talks aimed at ending the fiscal impasse in Washington by Jan. 1, saying their outlook for America’s sovereign debt was already negative and would not immediately change.

But officials of the agencies said they were looking toward another looming fiscal deadline — a date sometime in February or early March when the United States government risks running out of cash if Congress cannot find a way to raise its statutory debt ceiling. That date appears to pose more of a threat to the nation’s credit rating than Jan. 1, when a package of onerous tax increases and spending cuts will begin if America goes over what is commonly called the fiscal cliff.

Stock investors appeared on Friday to be more concerned about the economic consequences of raising tax rates than about a downgrade of the nation’s credit.

Stock prices fell around the world after Republican leaders announced Thursday night that they could not summon up enough votes for their own proposal to cut spending and raise taxes for the nation’s most affluent households.

The Standard & Poor’s 500-stock index fell 0.94 percent Friday, or 13.54 points, to 1,430.15. The Nasdaq composite index dropped 0.96 percent, or 29.38 points, to 3,021.01, and the Dow Jones industrial average fell 0.91 percent, or 120.88 points, to 13,190.84.

Stocks had largely risen over the last two weeks as President Obama and House Speaker John A. Boehner inched forward with small concessions.

Next week, the Treasury secretary, Timothy F. Geithner, is expected to alert Congress that the government has officially run out of borrowing capacity, currently limited to about $16.4 trillion under law. But Mr. Geithner has a package of extraordinary measures he can take to buy some time, so that lawmakers will not have to raise the nation’s debt limit even as they struggle to agree on how to shrink the budget deficit over the long term. The measures include suspending the issuance of special, nontrading Treasury bills that are used to finance federal employees’ retirement plans.

Fitch Ratings said in a report Wednesday that it was watching both processes and that the time frame was not open-ended.

“If the negotiations on the fiscal cliff and raising the debt ceiling extend into 2013, and appear likely to be prolonged with adverse implications for the economy and fiscal stability, the U.S. sovereign rating could be subject to review, potentially leading to a negative rating,” the agency wrote in its latest six-month report on sovereign debt.

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