Compromise vs. Leadership
The eleventh-hour compromise that avoided the fiscal cliff cannot be repeated when it comes time to raise the nation's debt ceiling, top lawmakers agreed Sunday.
But whether Republicans and Democrats can agree on how to raise the debt ceiling - specifically, whether or not to pair the increase with spending cuts - remains to be seen.
There was an increased likelihood it would strip the U.S. of its triple-A status if Washington does not prevent $600 billion of spending cuts and tax hikes from kicking in early next year.
America's Credit Declined?
"Failure to avoid the fiscal cliff.. would exacerbate rather than diminish the uncertainty over fiscal policy, and tip the US into an avoidable and unnecessary recession," Fitch said in its 2013 global outlook published on Wednesday.
"That could erode medium-term growth potential and financial stability. In such a scenario, there would be an increased likelihood that the U.S. would lose its AAA status."
America Prioritizing Debt Payments
Fitch current has a negative outlook on its U.S. sovereign rating. Rival rating agency Standard & Poor's was the first to strip the U.S. of its triple-A status in August last year.
Speaking on CNN, Sen. Dick Durbin, the No. 2 Democrat in the Senate, said spending cuts and tax reform are needed as part of a balanced plan to further reduce the federal deficit, but that linking them to a routine increase in the debt ceiling was a perilous proposal from Republicans.
"The debt ceiling is something that we should put behind us in a hurry," Durbin told CNN chief political correspondent Candy Crowley on "State of the Union."
The country's borrowing has actually already passed its legal limit - currently $16.394 trillion. As a result, the Treasury can't borrow any more money in the markets, so it has begun to use "extraordinary measures" to ensure that the government can continue to pay all its bills in full and on time. But those measures can only buy about two months' grace.
If the ceiling isn't raised by late February or early March, the United States runs the risk of defaulting on its obligations, because the Treasury would no longer have enough money available to pay all the country's bills.