Wednesday, October 16, 2013

As U.S. faces potential downgrade, markets flash alarm over debt-ceiling impasse

Stock and bond markets — as well as the system of daily borrowing that helps banks operate and companies make payroll — are flashing increasing concern about whether Congress will find agreement to raise the federal debt ceiling, suggesting that investors may not give lawmakers much more time to haggle before markets swoon.

On Tuesday, Fitch Ratings warned that it could downgrade the nation’s credit rating by the end of the year if the showdown in Washington continues. Fitch would become the second major credit-rating firm to strip the United States of its pristine AAA rating, which could have ripple effects across a range of markets dependent on U.S. government debt.

“Political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default,” analysts at Fitch wrote Tuesday. “The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as Social Security payments to citizens — all of which would damage the perception of U.S. sovereign creditworthiness and the economy.”

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