Fitch Ratings Places US on Ratings Watch Negative

WASHINGTON, DC-It is possible that Congress may come to a midnight-hour agreement on the federal shutdown and debt ceiling, but Fitch Ratings isn't waiting around to see. As it warned it might earlier, the ratings agency has placed the US' AAA long-term debt on ratings watch negative.

The reasons:

The US. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures. "Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default."

Some conservatives arguments that the US Treasury can pay its bills as tax revenues come in, and might be able prioritize payments don't hold much weight with Fitch. It noted that Treasury will be exposed to volatile revenue and expenditure flows. It also debunked the notion of priotization: "The Treasury may be unable to prioritize debt service, and it is unclear whether it even has the legal authority to do so," it said.

The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens - all of which would damage the perception of U.S. sovereign creditworthiness and the economy.

Looking beyond the number crunching of tax revenues versus government payments, Fitch notes that the US holds a favored place in the global financial system that allows hold a AAA rating despite the substantially higher level of public debt compared to other sovereign nations.

"The prolonged negotiations over raising the debt ceiling (following the episode in August 2011) risks undermining confidence in the role of the US dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the US," it said.