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Debt ceiling 101: eight questions about the latest round

Congress has until the end of February to raise the federal government’s borrowing limit, known as the debt ceiling, or the country risks going into default. How is this time different from the previous rounds of debt ceiling politics? Here’s a guide, plus the context.

8. What have all the machinations around the debt ceiling done to America’s credit rating?

Nothing good. In August 2011, the Standard & Poor’s ratings agency downgraded America’s AAA credit rating to AA+, after a compromise to cut spending and boost the debt ceiling fell short of what S&P felt was needed to stabilize the government’s “medium-term debt dynamics.”

In October 2013, another ratings agency, Fitch, put its AAA rating of US credit on “rating watch negative.” On Feb. 6, Fitch put out another warning: "Timely resolution of the debt limit is necessary to avoid immediate uncertainties about the Treasury's ability to remain current on its obligations, including payments on Treasury securities.”

The markets seem to be getting used to brinkmanship over the debt ceiling. But even the threat of default can raise borrowing costs, according to the CRFB. The Government Accountability Office has estimated that the 2011 debt ceiling debate led to higher interest rates on treasuries, costing the federal budget $1.3 billion that year and some $19 billion over a decade, the BPC says.

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Mark Sappenfield
Editor

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