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S&P official warns of pre-default downgrade

donsutherland1

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From CNN Money:

Senate Democrats and officials from leading business groups have been warned that the country's credit rating could be downgraded even before an interest payment is missed...

The warning counters the argument that the United States could keep its AAA rating so long as it made interest payments on the debt by prioritizing them above other bills.

S&P warns of pre-default downgrade - Jul. 14, 2011

While S&P's warning might contradict some of the political fiction being peddled over the air waves, in print, and online, it is a realistic assessment. After all, if a company has cash flow difficulties, begins having trouble paying suppliers or employees, its credit rating would not be unaffected simply because it continued to make debt service payments. The same applies with the government. If it fails to make payments to its own employees, its beneficiaries (individuals and state/local governments), etc., that would be an indication of increased risk.
 
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