US Faces Credit Rating Risk as Debt Standoff Persists

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The United States has received a warning from ratings agency Fitch that its pristine credit rating could be in jeopardy if the White House and Republican opposition fail to resolve their deadlock on raising the country's borrowing limit. Fitch placed the US AAA-ranked credit on "rating watch negative," citing increased political partisanship hindering a resolution before the June 1 deadline. This deadline, known as the "X-date," marks when the US Treasury Department predicts that, without an agreement, the government will run out of money, potentially triggering a default and catastrophic economic consequences.

Fitch emphasized that it still expects a resolution before the X-date but acknowledged the rising risks of the debt limit not being raised or suspended in time, leading to missed payments on certain obligations. The Treasury Department urged swift bipartisan action, highlighting the need to raise or suspend the debt limit to avoid an economic crisis. The White House called on Republicans to act responsibly, emphasizing that default is not an option and underscoring the necessity for Congress to pass a reasonable, bipartisan agreement promptly.

President Joe Biden's administration expressed optimism about reaching a deal but provided few indications of concrete progress on raising the debt ceiling beyond June 1. White House Press Secretary Karine Jean-Pierre stressed the catastrophic impacts that would result from a failure to raise the debt limit, including millions of job losses, devastating retirement accounts, and a recession. The two sides remain divided over differing approaches to managing the country's over $30 trillion debt.

Democrats, led by President Biden, advocate for a "clean" debt ceiling raise, authorizing more government borrowing to cover expenses already committed to but not funded in the budget. Republicans, influenced by a hard-right faction loyal to former President Donald Trump, are using the debt ceiling as leverage to push for significant spending cuts, particularly targeting social programs. The negotiations continue with each side holding firm on their respective positions.

Treasury Secretary Janet Yellen proposed freezing government spending at current levels as a compromise measure that would reduce the deficit by $1 trillion. President Biden's budget proposal aims to achieve $3 trillion worth of deficit reduction over 10 years. While the president is open to discussing budget constraints, Republicans reject the idea of raising taxes on the wealthiest Americans and corporations as a means to address the deficit.

House Speaker Kevin McCarthy ruled out passing a clean debt ceiling hike but expressed belief in the possibility of progress. Republicans emphasize the need to spend less than the previous year, placing responsibility on Democrats' spending habits. Republicans propose a plan that would reduce the deficit by $4.8 trillion over a decade but have faced criticism for slashing assistance for the most vulnerable while reinforcing tax cuts for the wealthy enacted under the Trump administration.

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