According to multiple media reports, an official from the rating agency Standard & Poor's told lawmakers and business officials that the agency could downgrade the United State's credit rating if the country misses any payments - including Social Security checks.
The rating agencies' actions highlight the potential costs of Washington's inability to reach an agreement to cut the federal budget deficit that Republicans have said is a prerequisite to Congress raising the debt ceiling. Treasury Department officials say the debt cap must be raised by Aug. 2 or they will run out of cash to pay the government's bills.
The S&P argument runs counter to the belief of some analysts, investors, and House Republicans who contend the U.S. can avoid a disaster if it misses some payments while staying current on those owed to bond holders. And until now, financial markets have mostly shrugged off the partisan bickering in Washington. Treasurys rallied earlier this week at a time of financial turmoil in Europe.
S&P's warning comes a day after Moody's Investor Service issued its own warning shot, saying it had put the U.S.'s triple-A credit rating on review for possible downgrade.
As our friend Frank James reports on It's All Politics, today, the debt ceiling negotiations are at a dramatic stage. And not only are they complicated between President Obama and Republican leaders, but they might be more complex between GOP leaders and, as Frank says, the "just-say-no bloc of House Republicans."
Negotiations are set to continue later today.