Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

The pronouncements of credit-rating agencies haven't commanded quite the same respect in the markets since their role as enablers in the U.S. mortgage-backed securities debacle that nearly brought the global financial system crashing down. But what Moody's chief executive Raymond McDaniel has to say about the prospects of a U.S. default are worth noting.

Mr. McDaniel doesn't see a cataclysmic event on the horizon, even if Washington's bungling politicians can't manage to set their differences aside long enough to authorize a hike in the $16.7-trillion (U.S.) debt ceiling to cover the heftier spending tab. And despite all the hand-wringing of many of those same politicians and various doom-and-gloom market types – not to mention Moody's rival, Fitch Ratings, which warned last week that the Washington gridlock is putting the country's rating at risk – Mr. McDaniel is right. There will be no sudden default on U.S. government debt. Interest payments to bondholders will not be deferred, which should assuage the foreign central banks, governments and investors that account for about half the total owing. The United States is not about to morph into Argentina.

If its Oct. 17 deadline for more borrowing authority comes and goes, the U.S. Treasury has several manoeuvres it can use to conserve depleted cash. These include tapping a special account at the Federal Reserve, borrowing from a federal employees' pension fund, selling assets such as mortgage-backed securities and delaying transfers to the states. The Treasury has undoubtedly already squirrelled away enough money to cover maturing debt and interest payments coming due by the end of the month, and the Federal Reserve, which acts as the Treasury's banker, also assuredly has a contingency plan to buy more Treasury bonds. Such measures were readied the last time the politicians came close to this precipice in 2011.

Story continues below advertisement

At the end of the day, President Barack Obama could simply decide to prevent the calamity of a default by ordering the Treasury to sell more bonds – with the Fed as the ready buyer. He could also direct Treasury officials to meet certain obligations – with interest payments to bondholders at the top of the list – while delaying others that would not trigger immediate default. But Republicans could not be counted on to co-operate with any effort to expand presidential powers.

"Hopefully, it is unlikely that we go past Oct. 17 and fail to raise the debt ceiling," Mr. McDaniel told CNBC on Sunday. "But even if that does happen, then we think that the U.S. Treasury is still going to pay on those Treasury securities."

Failure to authorize more government borrowing would unleash a maelstrom of financial and economic pain. But it would almost certainly leave foreign bondholders whole – after a few tight-collar moments in the days ahead.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies