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S&P says the US is risking a major downgrade but expects the debt ceiling to be set

The S&P Global logo will be displayed in its offices in the Financial District in New York City, United States on December 13, 2018. REUTERS / Brendan McDermid

Sept. 30 (Reuters) – S&P Global Ratings on Thursday warned of “serious and extraordinary” consequences for financial markets if the United States were to stop paying its debt, despite adding that it expected the US Congress to raise the debt ceiling will ultimately tackle in time.

“It would be unprecedented in this day and age that a progressive G-7 country like the US would be insolvent with its national debt,” S&P said in a bulletin.

Joydeep Mukherji, credit analyst for the United States, warned that a default would cause the rating agency to lower its rating for the country with the world’s largest economy to D, the lowest.

Mukherji said S & P’s actions would be the same in the event of debt defaults by other countries, and that even the default of a single US Treasury bill, note or bond would push the US rating to the lower end of the scale.

“We don’t think it’s going to h -pen,” he told Reuters. “That’s why we have an AA plus rating, the second highest on our scale.”

In 2011, S&P downgraded the USA’s top rating by one notch to the current AA Plus level.

US Treasury Secretary Janet Yellen has warned that the government could run out of money by October 18 if the debt ceiling is not raised or suspended, leading to her first default. read more A two-year debt ceiling suspension expired in July and Democrats and Republicans in Congress remain at odds.

Mukherji said that defaults in other countries are usually due to economic and financial pressures and that political factors are fueling the debt ceiling debate in the United States, which has a recovering economy.

With the US dollar being the most important currency in the world, he added, a default would have far-reaching implications.

“Nobody knows what the effects are,” he said. “We don’t know, we don’t want to know, but it’s going to be big.”

S&P noted that in the past decade, Congress passed law to raise or suspend the debt ceiling five times in times of political impasse.

The country had top credit ratings from all three major rating agencies until the S&P downgrade in August 2011 in a previous round of political battles over debt, deficits and the debt ceiling.

On a possible government shutdown, S&P said it would have no direct impact on creditworthiness.

Congress passed a transitional funding bill on Thursday to avoid a shutdown this week. Continue reading

Reporting by Mehr Bedi in Bengaluru and Karen Pierog in Chicago; Editing by Shailesh Kuber and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.

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