Fitch places US on rating watch negative on debt ceiling fight

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The Fitch credit rating agency put the United States on watch on Wednesday for a possible downgrade over a risk of default amid a government impasse on raising the national borrowing limit. 

Fitch said the AAA rating "reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit" ahead of a looming deadline.

The US Treasury Department said that June 1 is the "X-date" when the government will run out of money, triggering a default with likely devastating economic consequences. "Fitch still expects a resolution to the debt limit before the X-date," Fitch said in a statement.

"However, we believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations."

The #US is at risk of defaulting next month if the debt ceiling problem isn't resolved, and negotiations are at a stalemate, meaning a solution is not likely to be reached soon regarding the issue. pic.twitter.com/kFyvVHhrU8

— Al Mayadeen English (@MayadeenEnglish) May 20, 2023

President Joe Biden was involved in months of tense talks with the Republican opposition in Congress who have said they will agree to raise the borrowing limit only in exchange for significant spending cuts. Moreover, Republicans have decided to use this generally mundane procedure as leverage to force Biden to trim healthcare and other social programs.

The Biden administration said on Wednesday that it still sees a path to a deal, though there were no concrete signs that the two sides were moving towards an agreement.

US debt default puts social security, healthcare, veterans at risk

The United States is closing in on financial chaos as the two ruling parties have failed so far to reach a borrowing ceiling consensus, although the debt default is estimated to hit the government in early June, as per earlier statements by US Treasury Secretary Janet Yellen.

The debate over raising the debt ceiling has become an annual occurrence, however, this year Congress is in a race against time while Republicans and Democrats are yet to agree on the terms. In short, the United State's expenses exceed its revenues, which prompts an increase in the borrowing limit currently sitting at $31.4 trillion.

Read next: Asian markets sink as US debt ceiling talks stall

US markets are accumulating losses every day as the debt default date, also known as X-date, closes in. But the default impact would not be limited to the United States, rather, it would have a tremendous impact on the global markets. Moreover, in case this scenario happens, investors would lose trust in the US financial system, and thus won't be as motivated to invest in products and instruments backed by the US dollar.

Spending on federal programs, such as social securities, medical assistance, and benefits programs for serving and retired army personnel, among other payments that in total accounted for 45 percent of last year's 6.27 trillion budget, would be forced to a halt - affecting tens of millions of Americans. "We would simply not have enough cash to meet all of our obligations," Yellen said earlier this month.