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The Journal Gazette

Thursday, January 10, 2019 1:00 am

Shutdown threatens credit rating

Expert: US may need to borrow to pay interest on debt

Taylor Telford | Washington Post

As the partial government shutdown dragged into its 19th day, Fitch Ratings warned Wednesday that an extended shutdown might damage the country's Triple-A credit rating if lawmakers are unable to pass a budget or manage the debt ceiling.

While President Donald Trump spars with Democratic leaders over $5.7 billion for a border wall and funding for nine government agencies, hundreds of thousands of workers are caught up in the shutdown, furloughed or working without being paid, and much of the federal government is paralyzed. Shortly after Trump took his fight for the wall to prime-time TV, Fitch's global head of sovereign ratings, James McCormack, said that if the shutdown keeps lawmakers from being able to address the debt ceiling in early March, the inefficiency and ripple effects might do lasting damage to the country's credit.

“I think people are looking at the (Congressional Budget Office) numbers. If people take the time to look at that you can see debt levels moving higher; you can see the interest burden in the U.S. government moving decidedly higher over the next decade,” McCormack said in an interview with CNBC's “Squawk Box Europe.” “There needs to be some kind of fiscal adjustment to offset that, or the deficit itself moves higher, and you're essentially borrowing money to pay interest on the debt. So there is a meaningful fiscal deterioration there going on in the United States.”

If the shutdown is still in effect by March 1 “and the debt ceiling becomes a problem several months later, we may need to start thinking about the policy framework, the inability to pass a budget. ... And whether all of that is consistent” with a Triple-A rating, McCormack said at a later event in London, according to CNBC. “From a rating point of view it is the debt ceiling that is problematic.”

A downgrade in the U.S. credit rating would make borrowing more costly for companies and American households, according to Bill Foster, vice president and senior credit officer at Moody's, one of the big three credit ratings agencies, along with Fitch and Standard & Poor's. “The U.S. credit rating is the basis or benchmark for so many other lines of credit. If there was a change in the credit rating you'd expect the cost of borrowing to go up, and that would cascade through the economy.”