SINGAPORE/WASHINGTON — The possibility that the United States could default on its debt — if only for a few days — is starting to alarm the global community even as the idea gains favour among Republicans as a way to force Washington to cut runaway spending.
Fitch Ratings agency warned Wednesday that U.S. treasury bonds, seen worldwide as a risk-free investment, could be labelled “junk” if the government misses debt payments by Aug. 15.
Meanwhile, an advisor to China’s central bank said U.S. Republican lawmakers are “playing with fire” by contemplating even a brief debt default while a prominent Fed official said the reverberations in global markets would be “very severe.”
The idea of a technical default — essentially delaying interest payments for a few days — has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending.
But “even a so-called ‘technical default’ would suggest a crisis of ‘governance’ from a sovereign credit and rating perspective,” Fitch said in a statement.
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