Now this is a common thing for those who follow the events in Washington. Every few years, the US “flirts” with a default because its politicians disagree with a letter to raise the debt limit. However, this time the international rating agency Fitch warns that repeated episodes of this kind of political showdown could lead to a downgrade of the US credit rating, even if a default is avoided this time. “We’re more concerned this time around,” James McCormack, Fitch’s director of sovereign ratings, told CNN. Fitch and Moody’s currently give the US an excellent AAA credit rating, but this is not related to the fundamentals of the world’s largest economy. The fact that they are not in the best condition has been known since 2011, when S&P Global Ratings made an unprecedented decision to downgrade the US debt rating, as reported by moneyreview.gr. Since then, US debt and interest rates have risen sharply. In the last year alone, the US has paid $500 billion in interest. Thus, the reason why the country supports the AAA from Fitch and Moody’s is nothing less than the dominant role of the US in the global financial structure. The dollar is the world’s main reserve currency and US Treasury bonds are viewed by investors as a zero-risk position. These characteristics give the United States an incomparable economic power.

He warns that a US credit downgrade could happen even if a default is avoided.

Now McCormack warns that “recurring episodes” such as the ongoing dispute over the $31.4 trillion debt limit hike. dollars, undermine the status of the dollar as a reserve currency, but also the safety of US government bonds. The closer the US gets to any date when the government threatens to run out of money, the more investors are forced to think about the unthinkable: a catastrophic US default. “When investors have to think about something like that, it’s not what you expect from zero-risk investments, right?” McCormack explains, adding that people may need to reconsider whether U.S. Treasury bonds are really investments with zero risk. According to an analysis released last month by the Bipartisan Political Center, the US will default on its obligations in the summer or early fall if Congress does not decide on a debt limit by then. And James McCormack warned that Fitch could downgrade the US even if a default is avoided this time, depending on market reaction. “If the market reaction is to question the role of the dollar as a reserve currency and US Treasury bonds as zero-risk securities in the future, then we certainly could (downgrade the country’s credit rating),” he said. What the international chamber will be watching is whether foreign central banks are limiting their positions in dollars or US Treasuries.

If the US gets into such a situation, it will hurt Wall Street and the real economy, as it could potentially delay payments to welfare recipients, military personnel and veterans. However, Fitch and other analysts believe that Washington will once again make a deal at the last minute. “We believe that this time it will be the same, and the problem will be resolved before the critical date,” says McCormack. That’s why Fitch has not yet put the US rating on expectation of a downgrade. However, he acknowledges that this time the political dispute could be more dangerous given the political polarization in the US.