Moody’s Investors Service, one of Wall Street’s top-three credit raters, said Wednesday that it expects the U.S. Treasury to keep paying its debts on time even though it will run out of borrowing authority on Friday.
In a statement affirming the government’s top, AAA rating, Moody’s said it expects Congress ultimately to raise the legal debt ceiling after the Treasury runs out of borrowing authority but before it exhausts other extraordinary measures it can take to keep paying the government’s bills.
Treasury estimates it will no longer be able to keep dipping into government pension funds and using other extraordinary measures to stay afloat at the end of the month or by early March. But even beyond that drop-dead deadline, Moody’s says it expects Treasury will still be able to keep paying the nation’s debts.
Moody’s said it expects Treasury would cut other spending, such as payments to government contractors or benefit checks to veterans, seniors or Medicaid beneficiaries, rather than miss a debt payment that could result in a jolting downgrade of U.S. Treasury securities.
“Moody’s believes the Treasury would give interest payments high priority in the unlikely event the debt ceiling is not raised,” said Moody’s Senior Vice President Steven A. Hess.
Moody’s estimates that government spending would have to be cut by about 16 percent in other areas if the Treasury is to keep up its debt payments.
Mr. Hess noted that the 16 percent cut required to stay solvent is much smaller than the 36 percent cut in government spending that would have been required when Treasury’s ability to borrow expired during previous congressional standoffs over the debt limit.
Nevertheless, failure by Congress to raise the debt limit in time would likely trouble financial markets and cause “temporary and limited” damage to the economy, Moody’s said.
Moody’s assessment reflects the widespread belief on Wall Street that House Republicans will not want to repeat last year’s government shutdown debacle, which hurt Republicans politically, and will agree to increase the debt this year without major conditions that provoke a confrontation with President Obama. House Speaker John A. Boehner, Ohio Republican, recently said he sees no point in getting into another confrontation, and added that Congress is morally bound to honor the country’s debts.
However, on Wednesday, congressional aides said rank-and-file Republicans remain far from decided on what to do about the debt limit. “Sweeteners” that the leadership favors to attach to the debt measure — such as one requiring the president to approve the Keystone XL oil pipeline from Canada — so far have failed to make it attractive enough to balking conservatives, leaving in doubt whether the debt measure will pass, they said.
© Copyright 2016 The Washington Times, LLC. Click here for reprint permission.