The Agenda

Fitch Ratings Gives Payment Prioritization a Thumbs Down

Jeannette Neumann of the Wall Street Journal has news that might prove disappointing to advocates of payment prioritization, drawing on a conversation with David Riley, head of the sovereign-rating team at Fitch, a major credit-rating firm:

“If we have another one-minute to midnight deal, which we think is damaging to confidence and the recovery, and simply sets up another deadline for six months later, it’s not something which from our perspective would be consistent with retaining the triple-A.”

Also inconsistent with a triple-A rating, Mr. Riley said, is if lawmakers staring down the debt ceiling limit choose to make debt payments while skipping out—even temporarily—on Social Security payments or other government obligations.

“Living hand to mouth based on robbing Peter to pay Paul…that’s not what we associate with a triple-A rated government,” Mr. Riley said. A downgrade triggered by missed Social Security payments could be less severe than a rating cut following a missed bond payment, he added.

This doesn’t change the fact that a default is worse than a technical default, but it does undermine the case for payment prioritization as an attractive political alternative to raising the debt limit.

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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