Debt ceiling, the maximum amount of cash a government can borrow, can significantly impact different aspects of an economy, including credit/bond rating of the country. According to Jelly (2015), a downgrade of the rating from AAA to AA+ can have a detrimental impact on the borrowing terms of a government. These bond ratings are usually assigned by a credit rating agency (CRA) such as Moody’s, Fitch, as well as Standards and Poors (S&P). A credit rating can substantially increase the loan interest rates because the creditors have the confidence that the risk of default is low. This paper primarily highlights the bond ratings of the U.S. within the past five years and the current outlook.
For the past five years, the U.S. administration has experienced the darkest side of its credit rating since its inception in 1917. The federal government’s remarkable AAA rating was downgraded to AA+ by S&P in 2011 following the decision of the Obama administration to raise the debt ceiling to $ 14.3 trillion (Kelly, 2011). However, since then there have been notable steps taken by the country to reinstate its AAA ratings. For example, in 2013, the conservative Republicans influenced the shutdown the administration for almost 16 days by attempting to defund the Obamacare. This move was aimed at leveraging the debt ceiling (Amadeo, 2019).
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The current bond ratings of the country are still untouched after almost eight years. The S&P stands at AA+ with a stable outlook, while Moody’s and Fitch's ratings remain at AAA (Trading Economics, n.d.). The failure of the S&P to reinstate the AAA rating for the U.S. is attributed to the ever-bulging debt ceiling of the federal government, which now stands at a staggering $ 20.46 trillion. However, since 2017, the Trump administration has been strategically planning ways to suspend the Congress from increasing the nation’s debt ceiling to improve its credit rating outlook.
References
Amadeo, K. (2019, Jan 3). U.S. debt ceiling and its current status . The Balance, Retrieved from https://www.thebalance.com/u-s-debt-ceiling-why-it-matters-past-crises-3305868
Bowley, G. (2011, Jan 13). Uncle Sam wants his AAA rating. The New York Times, Retrieved https://www.nytimes.com/2011/01/14/business/economy/14place.htmlfrom
Kelly, K. J. (2015, Sep 1). S&P upgrades New York Times credit rating to positive. New York Post, Retrieved from https://nypost.com/2015/09/01/sp-upgrades-new-york-times-credit-rating-to-positive/
Trading Economics. (n.d.). United States: Credit rating. Retrieved from https://tradingeconomics.com/united-states/rating
