Moody's, which is among the big-three rating agencies, on Wednesday, said that it will review the federal government's AAA-rating because Washington is running out of time to raise the nation's $14.3 trillion borrowing limit, in order to avoid a default.
The US government has already reached its borrowing limit in May and they have been given a deadline for raising the federal debt limit on August 2.
The debt limit was created in 1917, when Congress allowed the treasury to borrow up to $11.315 billion to fund U.S. participation in World War I. Since 1962, Congress has raised the debt ceiling on 74 separate occasions.
The extent of U.S. borrowing was under fresh scrutiny last month when Standard & Poor's cut its outlook on the country's AAA-rating from 'stable' to 'negative'.
Since 1917, US has been rated Aaa, was put on review for the first time since 1995 on concerns that if it does not increase its debt-ceiling on time, it wouldn't be able to pay interest or principal on outstanding bonds and notes, as per the statement by Moody's.
US was able to get cheaper loans till now because of Investors strong confidence over the nation, but this downgrade would mean losing investors confidence and rising cost of borrowing.
A downgrade would also raise interest rates on US treasury notes and bonds which in turn will be onus on US taxpayers and all those loans will be affected which are related to treasury rates like mortgage loans, car loans, etc.
Moody's have been warning since it hit debt-ceiling last month and has been raising pressure on President Barack Obama and US lawmakers to make progress on an agreement by mid July. Chances are other credit ratings agencies, Standard & Poor's & Fitch may also take similar moves.