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Posted at 02:14 PM ET, 06/29/2011

Standard & Poor’s threatens ‘selective default’ if Congress misses debt-limit deadline

The United States risks having its credit rating downgraded to “selective default” if it misses a debt payment by early August, the head of one of the leading credit-rating agencies warned Wednesday.

Standard & Poor’s managing director, John Chambers, told Reuters that if the United States misses a payment due to a debt-ceiling-related default, U.S. Treasury bills maturing on Aug. 4 would be rated “D.”

“That would happen right after Aug. 4, when the bills mature, because they don’t have a grace period,” Chambers said.

The statement by Chambers is likely to add new urgency to the debt-ceiling battle being waged by party leaders and the White House. The country hit its $14.3 trillion debt limit in mid-May, and Treasury Secretary Timothy F. Geithner has said the United States will go into default if Congress does not vote to raise the federal borrowing limit by Aug. 2.

Already, Standard & Poor’s and other ratings agencies have offered warnings on the debt-ceiling debate. In April, S&P lowered its outlook on the U.S. debt from “stable” to “negative,” and Moody’s said earlier this month that if progress toward a debt-limit deal isn’t made by mid-July, it would move to review the U.S. credit rating for a possible downgrade.

President Obama urged lawmakers Wednesday to treat the Aug. 2 deadline as a hard and fast one, saying at a White House news conference that Congress should not delay the inevitable.

“If you know you’ve got to do something, just do it,” Obama said.

Some Republicans have maintained that the Treasury Department has options available that would prevent the United States from defaulting if a debt-ceiling vote does not happen by Aug. 2.

Sen. Jim DeMint (R-S.C.), a leading conservative and one of the more vocal skeptics of the Aug. 2 date, called on Geithner again Wednesday to consider taking extraordinary moves to ensure the United States does not default.

“Secretary Geithner’s approach to dealing with the looming debt crisis is to take his hands off the wheel and let the car careen over the cliff,” DeMint said in a statement. “He has numerous tools at his disposal to avoid default, but his refusal to explore all options and just play chicken with the federal debt is deeply irresponsible.”

As the debt ceiling battle has raged over the past several months, Republican leaders have generally expressed less skepticism about the Aug. 2 date. But in recent days, some leaders have declined to say whether they believe the United States would default if Congress fails to raise the borrowing limit by then.

By  |  02:14 PM ET, 06/29/2011

 
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