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Monday, August 1, 2011

Live Blog: The U.S. Debt Battle july 25, 2011

    • 0:27 am
    • Clinton "Confident" on Debt Deal
    • by Alex Frangos
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    U.S. Secretary of State Hillary Clinton, who is in Hong Kong Monday, said she is "confident" a deal will be reached on the U.S. debt impasse, but said the political ramblings in Washington remain "tense."
    In prepared remarks for a speech to Hong Kong's finance community, Mrs. Clinton added that intense political wrangling is "how an open and democratic society ultimately comes together to reach the right solutions."
    • 1:19 am
    • Australia's Swan: Debt Impasse Adding to Global Uncertainty
    • by Enda Curran
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    Australian Deputy Prime Minister and Treasurer Wayne Swan Monday urged U.S. lawmakers to speed up efforts to reach a solution on the debt ceiling impasse, warning the stalemate is adding to global uncertainty.
    "With the global recovery and confidence still fragile, it's in everyone's interests that U.S. policymakers work towards a speedy resolution of these issues," Swan said through his spokesman in emailed remarks to reporters. "Protracted debate is adding to uncertainty in the global economy."
    But he also said Australia's economy has a firm buffer from expected mining-related investment and a comparatively low level of public debt.
    • 2:20 am
    • How will Europe's markets open?
    • by Andrea Tryphonides
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    European equity markets are set to start the week on the back foot, says Chris Weston at IG Markets. This follows the failure of U.S. policy makers to come to an agreement to lift the US debt ceiling. As a result, he calls London's FTSE 100 to start down 45 points at 5890, Frankfurt's DAX down 49 at 7277, and Paris's CAC-40 down 29 at 3814. Economics news is thin on the ground, so it's likely the focus will be on Wall Street. Mr. Weston says the Dow Jones Industrial Average looks set to open about 130 points lower.
    • 3:10 am
    • Europe's Markets Open Lower on Debt Fears
    • by Andrea Tryphonides
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    European stocks opened lower Monday, after U.S. policy makers were unable to reach an agreement as to how the nation should tackle its debt, leaving investors quaking at the thought of a potential default by the world’s largest economy.

    London's FTSE 100 opened 0.6% lower at 5898.51, Frankfurt's DAX dropped 0.7% to 7269.21 and Paris's CAC-40 Index also shed 0.7% to 3817.21.
    Adding to investors’ fears, Moody’s early Monday downgraded Greece’s debt rating by a further three notches, pushing it deeper into junk territory.
    • 3:33 am
    • Australia Closes down 1.6%
    • by David Rogers
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    Australia's benchmark index closed down 1.6% Monday in quiet trading at 4530.4, falling to 4529.2 at one point, the largest one-day fall in the past 10 days.
    Energy stocks were weakest, as the market takes a slightly negative view on U.S. energy demand in light of the risk that the debt crisis could affect economic growth, according to MF Global senior trader Anthony Anderson.

    • 3:43 am
    • Default Worries Hit U.K. Bank Shares
    • by Ishaq Siddiqi
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    U.S. default worries are weighing on shares of U.K. banks in early European trade. Barclays is down 2.8%, Lloyds is down 2.5% and Royal Bank of Scotland is down 2.4%.
    "The likelihood of a technical default by the U.S. Treasury in early August is rising rapidly and such an occurrence would be traumatic for markets," says Lloyds Corporate Markets.
    • 4:01 am
    • Debt Fears Lift Gold Prices
    • by Francesca Freeman
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    Spot-gold prices hit a fresh record high of $1,623.49 a troy ounce in Europe amid renewed risk aversion after U.S. congressional leaders failed to reach an agreement over raising the nation's debt ceiling, and Moody's cut Greece's sovereign-debt rating by three notches.
    "The aura of uncertainty over the ongoing U.S. debt-ceiling talks [is] likely providing a solid floor under price levels," Morgan Stanley said in a note.
    This, combined with concerns over debt contagion in Europe, the inflation risk in China, and generally higher oil prices "will provide adequate impetus to keep prices at elevated levels," the bank added.
    Spot gold recently fetched $1,617.30 a troy ounce, up 1.1%, while spot silver was up 1.4% at $40.57 an ounce.

    • 4:45 am
    • Debt Deal Will Boost Dollar, Says BNY Mellon
    • by Eva Szalay
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    The U.S. dollar is expected to rally once an agreement is reached on raising the debt ceiling, Bank of New York Mellon says. The dollar has proven very resilient in the last couple of weeks despite the lack of an agreement on the debt ceiling, it notes.
    "Everything points to a substantial USD rebound once the agreement is made," said Neil Mellor, a currency strategist at BNY Mellon in London, adding that the rebound is likely to be the sharpest against the British pound.
    "The market got very overexcited about rate rises in the U.K. at the beginning of the year, but rate expectations have been scaled back substantially and the pound could be the one that suffers most [against the dollar]," Mr. Mellor said. The dollar traded recently at 78.17 yen and at £1.6299.
  • U.S. stock futures dropped while gold hit a fresh nominal record on Monday, as President Barack Obama and Congress failed to reach a deal to allow an increase in the nation's debt ceiling, raising worries that the U.S. might default on its sovereign debt.
    Just over four hours before the start of trade, futures on the Dow Jones Industrial Average were down 87 points, or 0.7%, at 12534 and those on the Standard & Poor's 500 stock index slumped 9.50 points to 1331.50. Nasdaq 100 futures were off 13 points at 2415.
    "With the world's largest economy now just eight days away from running out of money, once again we're left looking at the unthinkable proposition that Washington is pushed to default on interest repayments and the whole concept of the risk-free rate of return is thrown into turmoil," said Chris Weston, market analyst with IG Markets, in a note.
    • 6:16 am
    • European Stocks Stay Down Amid Deficit Showdown
    • by Michele Maatouk
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    Euro Stoxx 50 Index is down 0.5% at 2758.38, remaining in the red as investors worry about the possibility of a U.S. default, as the country's lawmakers are yet to reach a deal to raise the debt ceiling.
    "With the deadline now just eight days away, the outline of a deal really needs to be agreed today for it to stand a realistic chance of being passed into law by the August 2 deadline," said FxPro.
    At the same time, worries about European debt remain in focus after Moody's downgraded Greece's debt rating further. As a result, banks are the worst performers, with the Stoxx Europe 600 index for the sector down 1.8%.
    • 7:36 am
    • Debt Deadlock Boosts Yen, Swiss Franc
    • by Jessica Mead
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    Concerns over the impact of Greece’s latest financial-rescue deal and the glacial pace of negotiations to raise the U.S. debt ceiling unnerved investors Monday, giving the Swiss franc and Japanese yen a boost.
    The dollar hit an all-time low against the Swiss currency at 0.8021 franc, while the buck dropped to another post-intervention low of ¥78.06, as traders flocked toward traditional safe havens. Gold prices climbed to a fresh record high of $1,623.49 a troy ounce, while European equities fell from the open, led down by financial stocks.
    “It’s quite a choppy start to the week and this is set to continue with plenty of big data events on the horizon,” said Ian Stannard, senior currency strategist at Morgan Stanley.
    The euro traded recently at $1.4378, compared with $1.4358 late Friday in New York. The dollar was at ¥78.21 recently, from ¥78.55, while the euro was at ¥112.45 from ¥112.98. Meanwhile, the pound slipped to $1.6277 from $1.6300. The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 74.087 compared with 74.242 late Friday.
    • 8:17 am
    • Investors Return With No Deal
    • by Brendan Conway
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    U.S. stock futures are sharply lower as investors return to work without appreciable news from Washington, where debt-ceiling talks broke down.
    Markets are likely to react strongly to any hint of a thaw in DC; downdraft could also accelerate if stalemate persists.
    "The U.S. stock market has not factored in the potential for any default at this point," said Paul Nolte, managing director at Dearborn Partners in Chicago. "Even if it's a temporary deal, it buys time. The financial markets are looking for some kind of progress."
    Dow futures are down 84 points; S&P futures are off 10 points.
  • Democrats and Republicans are working on separate proposed solutions as the Aug. 2 deadline to raise the debt ceiling looms. Watch a video recap of the weekend drama in Washington from the Journal's Joe White.
    • 9:07 am
    • Jim Rogers: U.S. Already Has Lost AAA Rating
    • by The News Hub
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    Famed investor Jim Rogers says the U.S., in effect, already has lost its AAA credit rating because of fiscal mismanagement. He is pessimistic on the country's outlook, and calls the current debt negotiations in Washington a political "charade." Watch the video here.
    • 9:55 am
    • Stocks Drop on Gridlocked Debt Talks
    • by Brendan Conway
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    U.S. stocks fell sharply and gold hit another record as Washington's stalled debt negotiations spurred fears of a default or loss of the government's triple-A credit rating.
    The Dow Jones Industrial Average shed 122 points, or 1%, to 12560, erasing more than half of last week's gains as investors retreated from risky assets like stocks. The Standard & Poor's 500-stock index lost 12 points, or 0.9%, to 1333, with all sectors declining. The Nasdaq Composite dropped 25 points, or 0.9%, to 2834. Read more.
    • 10:10 am
    • Are We In For a Markets Roller Coaster?
    • by News Hub
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    Dow Jones Newswires Managing Editor Neal Lipschutz joins the News Hub special debt ceiling coverage to discuss market reaction to the lack of resolution in Washington over the weekend. Watch the video here.
    • 10:28 am
    • White House Counters on Debt Limit Increase
    • by Carol E. Lee
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    The White House is pushing back on Republican charges that President Barack Obama is thinking about his re-election in objecting to a short-term debt limit increase.
    In a blog post on whitehouse.gov, White House communications director Dan Pfeiffer writes: “Indeed, before they were for a short term solution, it turns out they were against it for the very same reasons President Obama believes it is the wrong approach.”
    Mr. Pfeiffer then lists a few stories from Politico and the Hill newspaper showing some Republican leaders —including House Majority Leader Eric Cantor (R., Va.) and Senate Minority Leader Mitch McConnell (R., Ky.) — in June were against the idea of a short-term increase.
    Republicans argue that, with a week before the deadline, a short-term increase in the debt ceiling is better than default.
  • House and Senate leaders will move ahead today with their competing plans to reduce the deficit and raise the debt ceiling, as financial market players appear ready to give them some more time to reach a deal.
    At 2 p.m. Eastern, House Speaker John Boehner (R., Ohio) is set to detail his latest plan in a meeting with GOP members, and is expected to file legislation by midnight. Across the Capitol, Senate Majority Leader Harry Reid (D., Nev.) is expected to introduce his proposal today.
    President Barack Obama could comment on the talks at some point today, but his public schedule is filled with events unrelated to the debt crisis: a speech at the National Council of La Raza’s annual luncheon and an event congratulating 2010 World Series champions, the San Francisco Giants.
    • 10:44 am
    • When Exactly Would A Default Occur?
    • by Damian Paletta
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    There was some buzz in Washington over the weekend about an analyst report from Barclays Capital that said because of robust tax receipts in recent weeks, the Treasury Department might actually have until Aug. 10 — instead of Aug. 2 — before the country begins defaulting on its obligations.
    Treasury Department officials are declining to comment on the report.
    Barclays said that an earlier analysis showed that on Aug. 3, Treasury would have been required to spend $32 billion but would have had only $30 billion in cash on hand to meet those payments. Now, Barclays believes that because of an extra $15 billion in unexpected tax revenue, Treasury will easily be able to meet its obligations on Aug. 2 and continue for at least another week. Treasury would run out of room, Barclays estimates, Aug. 10.
    White House officials have repeatedly said that the Aug. 2 date isn’t moving, in part because the emergency measures they have put in place since May 16 are expected to run out by that point. And to be sure, the period between Aug. 2 and Aug. 10 will depend in large part on the way markets and investors react. Stalled growth could lead to lower-than-projected tax receipts, which could worsen problems.
    On Aug. 4, Treasury has to roll over $87 billion in maturing debt, and the market’s appetite for that is also an unknown.
    But importantly, Treasury hasn’t said the country would default on its obligations on Aug. 2, or even Aug. 3. It just said it will run out of “runway” and could begin defaulting after that date.
    One of the big mysteries in Washington is when exactly Treasury would default. It probably wouldn’t be considered a “default” by markets unless Treasury misses an interest payment as soon as Aug. 15 or a principal payment to bondholders at some point in August. Skipping or delaying other payments, such as Social Security checks, probably wouldn’t qualify as a default.
    Treasury officials have said they could begin defaulting after Aug. 2. How many days after? Well, that’s the big question.
    • 10:53 am
    • Should Banks Prepare Contingency Plans?
    • by Victoria McGrane
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    Regulators are so far keeping mum about what banks should be doing to prepare for the possible failure of debt talks, or for the eventuality that ratings firms could downgrade the U.S. even if the debt ceiling is raised.
    Jaret Seiberg, a Washington analyst for broker-dealer MF Global, wrote in a note this morning that regulators are likely actively planning for these scenarios. It just might not do that much good.
    “We believe the bank regulators have contingency plans in place and will employ extraordinary measures to prevent a default from crippling the financial system. Yet we also worry this may be like trying to put out a burning building with a bucket of water. In the end, it may be futile,” Mr. Seiberg wrote.
    • 11:11 am
    • Survey: Voters Prefer "Balanced" Approach
    • by Katie Glueck
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    What do voters think of the Washington debt follies? A Rasmussen poll released Monday offers a fresh glimpse that could be of interest to congressional candidates gearing up for 2012 campaigns.
    Most of those surveyed — 56% — said they would prefer a congressional candidate who pursued a “balanced” approach to reducing the federal debt, keeping both spending cuts and tax revenue increases on the table. “Balanced,” of course, has been a key word in President Barack Obama’s call for a deal that blends spending cuts and tax increases.
    But the results are not consistent across the major parties. Among Republicans, 54% favored a candidate who would oppose all tax increases;  77% of Democrats and 56% of survey respondents unaffiliated with either party said they would be more inclined to support a candidate who pursued both spending cuts and tax increases.
    The survey of 1,000 likely voters was conducted on July 22-23 and has a margin of error of 3 percentage points.
    Rasmussen’s report noted some potentially bad news for Democrats. The polling organization cited a separate survey, released Sunday, that showed 45% of likely voters trusting Republicans more on economic issues, with 35% trusting Democrats more on the subject. That poll of 1,000 likely voters was conducted July 18-21 and has a margin of error of 3 percentage points.
    • 11:18 am
    • Monday Morning's Market Shrug
    • by Joseph B. White
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    Sunday’s dire talk of financial market turmoil if Washington failed to show progress toward a debt deal has given way to Monday morning’s collective shrug from investors.
    Yes, the yield on a 10-year U.S. Treasury bond rose about 2% to 3.023%, crossing 3% for the first time in months. Yes, the Dow Jones Industrial Average is down about 0.6%, following declines of similar scale in Asian and European markets. And the International Monetary Fund is out with a fresh warning about the “universally large and negative effects” of a loss of confidence in U.S. debt.
    But a re-run of the Lehman Monday panic in 2008 or the Dow’s plunge after the failure of the first House vote on the TARP bank bailouts? Not yet. As savvy investors know, however, past results are no assurance of future performance.
    • 11:27 am
    • How Should Investors Play Debt Talks?
    • by Mark Hulbert
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    How should concerned investors respond to uncertainty over the outcome of the debt talks? MarketWatch's Mark Hulbert discusses in this video.
    • 12:03 pm
    • Debt Mess Creates Ticket-Tax Holiday
    • by Scott McCartney
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    A dysfunctional Congress let funding expire for Federal Aviation Administration on Friday, forcing the agency to lay off thousands of employees and shut down airport construction projects.
    But another consequence of the budget mess is that the FAA can’t collect taxes on airline tickets and had to roll back taxes on jet fuel. So most airlines raised their prices quickly to soak up the tax savings. Prices for buyers remained roughly the same –- but airlines get to keep more of the fare. Fair? Read more.
    • 12:06 pm
    • It Might Not Be the End of the World
    • by Mark Gongloff
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    Almost nobody really expects the US to default on its debts as a result of this interminable debt-ceiling brouhaha, which helps explain why markets aren’t exactly beside themselves with terror today. Read more
    • 12:16 pm
    • European Stocks Close Down, but Not as Bad as Expected
    • by Michele Maatouk
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    European stocks ended mostly lower Monday as the possibility of a U.S. default and a further downgrade of Greece’s credit rating weighed on sentiment, resulting in a flight to safety that pushed gold prices to record highs and the Swiss franc to an all-time high against the dollar.
    The Stoxx Europe 600 index closed down 0.3% at 271.29. The U.K.’s FTSE 100 index fell 0.2% to 5925.26, France’s CAC-40 index ended down 0.8% at 3812.97 but Germany’s DAX managed to close up 0.2% at 7344.54.
    Still, European stocks did not fall as much as expected and ended the day off lows, supported by resilience in U.S. markets.
  • White House spokesman Jay Carney took a swipe at the GOP on Twitter.  He tweets: "House GOP risks our economy by refusing to compromise. #Speaker walked away twice from fair deals backed by the public. THAT’S indefensible."
    • 12:43 pm
    • GOP, Democrats to Brief Their Ranks
    • by Carol E. Lee and Naftali Bendavid
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    Financial market players appear ready to give Republican and Democratic leaders some more time to reach a deal. The two camps remained split over how much to increase the debt limit—enough to get past the 2012 election or not—and how much to cut spending.  Read more
    House GOP risks our economy by refusing to compromise. #Speaker walked away twice from fair deals backed by the public. THAT’S indefensible.
    • 12:49 pm
    • Obama Cancels Fund-Raisers During Debt Talks
    • by Jonathan Weisman
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    With Washington tied in knots over the debt ceiling negotiations, the two leading candidates for president in 2012 are going opposite directions on the fund-raising front: President Barack Obama is canceling fund-raisers, while Mitt Romney is raising lobbyist cash in Washington on Tuesday.
    The former Massachusetts governor will attend a “Lawyers for Romney” luncheon at the powerhouse lobbying firm Patton Boggs, according to an invitation nabbed by the non-partisan Sunlight Foundation. The host committee includes former Senate Majority Leader-turned-lobbyist Trent Lott and Ben Ginsberg, who served as counsel to Mr. Romney’s campaign in 2008 and to President George W. Bush’s two campaigns. The 10 hosts pledged to raise $5,000. The cost of attending was set at $1,000.
    You can view the invitation here: http://politicalpartytime.org/party/27140/#invite
    Mr. Obama has been wary of the optics of fund-raising while his administration and Congress continue to negotiate over a deal on the debt ceiling. Obama campaign officials confirmed that Mr. Obama scrapped a West Coast swing through California and Seattle, and he postponed until August a fund-raiser at the Manhattan home of movie mogul Harvey Weinstein, first reported by Chicago Sun-Times correspondent Lynn Sweet.
    The president was supposed to attend two fund-raisers in Washington tonight, one in a private residence, another at the St. Regis Hotel. The private-residence event has been canceled. Vice President Biden will be subbing for his boss at the St. Regis.
    Vice President Joe Biden has called off finance events in Dallas, Atlanta and Nashville.
    • 1:08 pm
    • Washington's Spin Doctors Likely to Play Dueling Banjos
    • by Jerry Seib
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    If lawmakers aren’t proving very good at working together to find a solution to the debt and deficit impasse, they’re working hard on spinning their views on the problem.
    The latest: Democratic Sen. Harry Reid, the Senate Majority Leader, and Sen. Chuck Schumer, a member of his leadership team, hold a news conference at 2:30 this afternoon. Republican leaders are similarly fanning out to tout about the plan for raising the debt ceiling they expect to put out later today. That increases the prospect that the capital may have, by the end of the afternoon, dueling Senate/Democratic and House/Republican plans for cutting the deficit and raising the debt ceiling.
    • 1:28 pm
    • No Debt Deal Weighs On Dollar, but Maybe Not for Long
    • by Bradley Davis
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    Failure to hammer out a deal to raise the debt ceiling, would make "it difficult to read a negative cascade of credit events in the US as anything but a medium-[dollar] negative," says Todd Elmer of Citi.
    Stocks and other risk-positive assets would also fall, though, Mr. Elmer says. That eventually could limit the dollar's losses.
    "With positioning still predominantly short [on the dollar], such risk reduction represents a dollar positive. Since investors have been relatively slow to pare back of USD exposure recently and shorts may have actually climbed in the wake of the easing of the sovereign debt crisis in Europe."
    So far, the dollar is down broadly against most of its rivals, but its moves have been modest, dipping about 0.25% against the Japanese yen and hovering around even on the day against the euro.
    • 1:37 pm
    • Obama Outlines Position to Latino Voters
    • by Jared Favole
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    President Barack Obama told a group of Latino voters Monday that spending cuts along won't solve the country's deficit problems and will prevent the government from investing in things such as education.
    President Obama, who late last week accused Republicans of walking away from a deal to cut the country's deficit, said the majority of Americans are with him in believing cutting the deficit should include revenue, or taxes.
    Such a "balanced approach," President Obama said to applause, is "one where the wealthiest Americans and big corporations pay there fair share too."
    President Obama was speaking at the annual luncheon of the National Council of La Raza, the largest national Hispanic civil rights and advocacy organization in the United States. He said if the deficit is cut by slashing spending alone, seniors will have to pay more for health care, students will have to pay more for college and unemployed workers may not be able to get job training.
    President Obama acknowledged, however, that "Neither party is blameless for the decisions that led to our debt."
    Obama joked that he wished he had sole power to raise the country's debt ceiling and cut the deficit. "Right now dealing with Congress, the idea, believe me the idea of doing things on my own is very tempting," Obama said while laughing.

  • Looking for economic analysis of the U.S. debt situation? Check out this series of statements from the likes of Ed Yardeni, William Poole and Ian Shepherdson on the Journal's Real Time Economics blog.

    • 2:11 pm
    • Twitter Wars Heating Up
    • by Joseph B. White
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    The Twitter Wars are heating up.  House Speaker John Boehner’s press secretary returns fire at White House Secretary Jay Carney.
    Brendan_Buck: @PressSec: A "fair deal" is the American people getting their spending cuts before the @WhiteHouse gets its debt limit increase

    • 2:17 pm
    • Geithner and Greece
    • by Joseph B. White and Ian Talley
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    Treasury Secretary Tim Geithner took time out from coping with a potential U.S. debt default to offer words of  encouragement to Greek’s finance minister, Evangelos Venizelos , who knows all too well what it feels like to be in the midst of a full-blown sovereign debt crisis.  Mr. Geithner said he “welcomed the progress” from Greece in moving to overhaul its economy. Perhaps Treasury officials will be taking notes when Mr.  Venizelos delivers a speech titled:  "The Greek Debt Crisis: Prospects and Opportunities."

    • 2:48 pm
    • Gridlock Hope From the Gridiron
    • by Joseph B. White
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    The deadlock is broken...  in the NFL.  Football player representatives agree to 10-year deal. Read the article.

    • 2:50 pm
    • Schumer Blasts Republicans
    • by Joseph B. White
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    Sen. Chuck Schumer at a press conference with Senate Majority Leader Harry Reid is blasting a “short term increase in the debt ceiling” and says Republicans have “flip flopped.”
    Talking up the Senate Democrats debt ceiling plan, Schumer says:  “This is an offer Republicans can’t refuse.”

  • Sen. Chuck Schumer: “Our proposal contains no revenue raisers…this is a very hard decision for many on our side...We can have the fight on revenues later.”
    On the Senate plan: “There is no alternative but default.”

  • Senate Majority Leader Harry Reid is talking now. Says Republicans could “never get off” the idea of a short term, six month debt deal.
    Question: “Is this a game of chicken?”
    Reid: “This isn’t a game of chicken. This is a game of reality. We are about to go over the cliff.”

    • 3:00 pm
    • Reid: No Entitlement Changes Without Taxes
    • by Joseph B. White
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    Sen. Majority Leader Harry Reid (D., Nev.), asked about Republican arguments that savings from winding down wars aren’t “real:” Laughs. “It’s scoreable by CBO.”
    Responding to a question about figures: “I’m not much of a numbers wonk. Get the numbers from my staff.”
    Asked about a long term deal: “We will not touch entitlements without some movements on revenues. That means taxes.”
    Question: What is the drop dead deadline.
    Reid: “We are fast approaching the drop-dead date.”

    • 3:01 pm
    • Schumer Takes the Mic Again
    • by Joseph B. White
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    Sen. Schumer pushes past Sen. Reid to heap more blame on GOP: “They won’t budge... Here we move totally in their direction. Their proposal doesn’t move an inch in our direction.”
    “There are 100 people in the House who don’t care if we default.”

    • 3:03 pm
    • Senate Plan Aims to Get Through 2012
    • by Joseph B. White
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    Reid says his proposal has spending numbers for two years: “If mine passes we’re all done.”

  • President Barack Obama says a short-term debt ceiling increase would be worse than a deficit-reduction plan that only includes spending cuts. It’s not clear he will get to choose.
    The president insisted again Monday that a “balanced” plan -- one that includes tax increases -- is the only way to shrink the deficit without hurting the economy. “We can't just close our deficits by cutting spending,” Mr. Obama said during remarks at the annual luncheon of the National Council of La Raza.
    That’s been Mr. Obama’s position for weeks. But Congress is moving on. Senate Majority Leader Harry Reid just got done presenting the outline of his plan to raise the debt ceiling and cut spending by $2.7 trillion. House Speaker John Boehner (R., Ohio) and his House Republicans are unveiling their rival plan to cut spending by roughly $3 trillion and raise the debt ceiling in two phases: the first would extend the limit for roughly six months and cut spending by $1.2 trillion over 10 years; the second would depend on the work of a commission tasked with cutting up to an additional $1.8 trillion.
    An administration official said if congressional leaders can’t agree on a $3 trillion to $4 trillion deal -- and it seems unlikely they will -- then Mr. Obama is backing Reid’s plan because it’s the “responsible, reasonable option.”

    • 3:16 pm
    • White House Backs Reid Plan
    • by Joseph B. White
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    White House spokesman Jay Carney criticizes the “my way or the highway” approach of the House Republicans who back a short-term debt deal. Then adds in a statement:
    “Senator Reid’s plan is a reasonable approach that should receive the support of both parties, and we hope the House Republicans will agree to this plan so that America can avoid defaulting on our obligations for the first time in our history. The ball is in their court.”

    • 3:43 pm
    • Toomey to Call for Plan to Prioritize Payments
    • by John D. McKinnon
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    Sen. Pat Toomey (R., Pa.) wants Congress to think about what many lawmakers say is unthinkable: Life after Aug.2 without a deal to raise the federal debt ceiling.
    The freshman senator plans to hold a press conference on Tuesday to introduce new legislation aimed at forcing the federal government to prioritize payments to creditors in the event that there’s no deal to raise the federal debt limit.
    Mr. Toomey expects to be joined by like-minded conservatives in both the Senate and the House, including representatives of the House Republican Study Committee, a spokeswoman said.
    Even if the legislation doesn’t become law, it could become a new rallying cry for conservatives who believe that the Aug. 2 deadline set by Treasury for raising the debt ceiling is an arbitrary one, and that the U.S. government could avoid default on its debts by prioritizing payments to bondholders and other creditors, rather than by immediately raising the debt ceiling.
    “Sen. Toomey has been working with his colleagues on the House side to make sure the U.S. prioritizes payments to servicing our debts to make sure that we do not default in case the debt limit is not increased,” the spokeswoman said. “Tomorrow, he will be hosting a press conference with his Senate and House colleagues, including RSC Chairman Jim Jordan, to introduce new legislation that will prioritize payments on debt service, Social Security, and military pay.”

  • As we get near the close of the day with still a mostly muted reaction to the debt ceiling impasse, the question becomes: When will markets react?
    Until now, the market reaction to the on-again-off-again negotiations in Washington has been fairly reserved, mostly because the consensus is that neither Democrats nor Republicans want to commit political suicide. But conversations with portfolio managers, strategists and economists suggest many are giving the government until end-of-day Wednesday to show some discernible progress instead of just throw debt-cutting proposals back-and-forth.
    There are reasons to make Wednesday the cut-off date. For one, it's the day that Speaker of the House John Boehner has targeted for bringing a vote to the floor of the House on his plan for a temporary debt ceiling increase. It's also the day that trades need to get executed if investors want to receive settlement before the weekend. Read some thoughts from market participants on Real Time Economics.

  • Robert Kraft, owner of the New England Patriots, offered this aside during a press briefing after representatives of the NFL players association approved a 10-year contract deal:  “I hope we gave a little lesson to the people in Washington, because the debt crisis is a lot easier to solve than this deal was.”  Mr. Kraft might want to screen calls from the 202 area code. He could find himself drafted to show Democrats and Republicans how it’s done.

  • House Speaker John Boehner is on the air, explaining his new debt limit plan: "It would be irresponsible for the President to veto” the GOP plan.

    • 4:10 pm
    • More From the GOP Press Conference
    • by Joseph B. White
    • Add a Comment
    Rep. Kevin McCarthy: “The president picks policy over people."

    • 4:13 pm
    • GOP Press Conference Ends
    • by Joseph B. White
    • Add a Comment
    Boehner: Senate plan is full of “gimmicks.”  He calls for a continued to push for a balanced budget amendment and then ends the press conference.

    • 4:14 pm
    • Treasury May Have 3 Days To Fix A Default Before CDS Trigger
    • by Katy Burne
    • Add a Comment
    If the U.S. fails to raise its borrowing limit by Aug. 2, when the Treasury says it will exhaust its supply of tricks to avoid defaulting on federal debts, it may take a week for the full shock wave to hit the credit derivatives market.
    A panel of derivatives experts would likely declare a "credit event," triggering payouts on $4.77 billion in credit default swaps on U.S. Treasurys, should the government default on $90 billion of debt maturing Aug. 4 and not make investors whole by the close of business Aug. 9, swaps executives told Dow Jones Newswires Monday.
    Companies typically have up to 30 days after missing a payment before sellers of credit default swap, or CDS, protection are forced to pay buyers. With Treasury debt, there appears to be no clear specification as to what that grace period should be. Colleen Murray, a spokeswoman at the Treasury Department, was unable to immediately confirm if any grace period is applied to U.S. debt.

    Aug. 4 is the first date that principal and interest payments fall due after Aug. 2, when the Obama administration estimates it will need authorization to borrow more money or it will not be able to pay its bills. Some $500 billion of U.S. debt matures in August, including about $30 billion on Aug. 15.

    Assuming the U.S. government does not have a grace period on its T-bills, as corporate borrowers do on their debt, a standard three-business-day grace period would apply before the CDS would be triggered for settlement. That means if the government took four days to cure a default, holders of CDS protection would be able to collect, but if the government took two days to cure, they could not.

    Dealers and money managers have been scrambling to understand these CDS customs as political leaders continue to squabble over whether to raise the debt ceiling before Aug. 2. Until now, a U.S. default was so unthinkable that derivatives market executives did not need to consider how such events would play out.

    "There's nothing quite as complicated as a U.S. failure-to-pay event," said one senior CDS official at a dealer in New York.

    Under credit derivatives definitions compiled by the International Swaps and Derivatives Association, a trade group that also convenes regional committees of derivatives experts to decide on CDS triggers, a three business day grace period is applied whenever none is specified, or if the one specified is fewer than three business days.

    "I'm not sure it's easy for people to get their hands on a complete set of terms and conditions for U.S. debt," said David Lucking, partner at law firm Allen & Overy in New York. "A lot of people have come up short in terms of being able to point to the formal contract terms of a Treasury bill. In the past, we've never worried about a U.S. default."

    For now, derivatives professionals are working on the assumption of a three-business-day window because of the lack of clarity about U.S. Treasury grace periods.

    Some believe Congress needs a negative reaction from the financial markets to progress in its negotiations. That sign may have already arrived, according to Otis Casey, a credit analyst at Markit in New York, considering the rising cost of CDS covering on U.S. debt.

    The annual cost of protecting  €10 million of U.S. Treasurys over five years using CDS climbed to its highest in 18 months Monday, reaching €57,000 up €4,000 a year from Friday's close, according to Markit data. The cost of one-year protection matched its record high of €75,000 from March 2009 when the credit markets dried up in the wake of the financial crisis, up €22,000 or 41% from Friday's levels.

    U.S. protection is traded in euros because CDS buyers seeking protection against a U.S. default want to protect themselves against the likelihood that the dollar would plunge if the government failed to pay its debts.

    The market for sovereign CDS globally is $2.5 trillion, a fraction of the overall $29.9 trillion CDS market, according to data for the end of 2010 from the Bank for International Settlements. The $4.77 billion in CDS outstanding on U.S. debt represents how much would change hands between net buyers and sellers of protection in the event of a failure to pay.

    • 4:22 pm
    • Conservatives Criticize Boehner Plan
    • by Joseph B. White
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    House Speaker John Boehner’s new plan to cut spending and raise the debt limit is taking flak from the left – that’s predictable. But it’s also taking fire from the right.
    The Cut, Cap, Balance Coalition, the group of conservative groups pushing for a balanced budget amendment as part of a debt limit deal, says Boehner’s latest proposal for cutting spending in return for raising the borrowing limit “falls short” of its principles. The CCB group particularly doesn’t like the idea of a new congressional commission to ferret out spending cuts. The CCB concludes that those who have signed its pledge oppose the new Boehner plan “and hold out for a better plan.” The CCB group’s website counts 12 senators and 39 House members as pledge signers.

    • 4:30 pm
    • President to Address Nation Tonight
    • by Laura Meckler
    • Add a Comment
    White House Press Secretary Jay Carney tweets, "POTUS to address nation, 9 pm tonight, re stalemate over avoiding default and the best approach to cutting deficits. Watch @ wh.gov/live"

    • 4:36 pm
    • Boehner Commission Taking Flak
    • by Joseph B. White
    • Add a Comment
    GOP freshman Rep. Tim Huelskamp (Kans.) comes out against House Speaker John Boehner’s proposal to form a committee to find deeper spending cuts: “America does not need Deficit Commission Version 18.0.”

    • 4:38 pm
    • Increasing Wariness of U.S. Default
    • by Justin Lahart
    • Add a Comment

    Credit-market investors are becoming warier of a U.S. default, Real Time Economics reports.

    • 4:45 pm
    • Obama Prime-Time Address a Rarity
    • by Carol E. Lee
    • Add a Comment
    President Obama schedules a prime-time address on the debt standoff, grabbing a lever of power he has used sparingly. Among the other occasions: the Gulf oil spill, the end of combat operations in Iraq, the death of Osama bin Laden, the deal that averted a government shutdown and an explanation of the military operation in Libya.

    • 4:51 pm
    • Corker Warns of Downgrade
    • by Victoria McGrane
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    Tennessee Republican Sen. Bob Corker says it’s time his fellow lawmakers and federal regulators start dealing seriously with the prospect that U.S. government debt could get hit with a credit downgrade even after Congress raises the $14.29 trillion debt ceiling.
    Mr. Corker, a member of the Senate Banking Committee who played a prominent role in debates over the Wall Street bailouts and financial regulation, said he’s confident that Congress will raise the debt-ceiling. But it’s “at least up in the air” as to whether lawmakers can couple that increase with a deficit-reduction deal that convinces credit ratings agencies that the U.S. has its fiscal problems under control, he said.
    Mr. Corker says a new body of regulators created by last year’s Dodd-Frank financial overhaul law should be reaching out to lending institutions. Known as the Financial Stability Oversight Council, or FSOC, the panel is headed by Treasury Secretary Timothy Geithner, and is charged with monitoring emerging, system-wide risks to the financial markets.
    “It’s obvious that if that downgrade did occur it’s going to hugely affect our financial system and yet ... nothing’s happening,” said Mr. Corker.
    U.S. banks hold a total of about $1.6 trillion worth of Treasurys and other U.S. government securities as assets on their balance sheets. Given how much U.S. debt banks are holding, even a small drop in the value of Treasurys could translate into a big hit to balance sheets. If it's big enough, some banks could see solvency threatened.
    Treasurys also play a vital role in bank funding markets, which could be thrown into disarray by a downgrade.
    U.S. bank officials say they’re getting little guidance from Treasury, the Federal Reserve or other regulators who sit on the FSOC.

    • 4:58 pm
    • Big Investors Sound 'Call to Reason'
    • by Mary Pilon
    • Add a Comment
    More groups are weighing in as the debt ceiling battle hurtles into its final days. Now comes a group of big investors and public pension funds calling on Washington to deal with the deficit “for good.”  In an open letter titled “A Call to Reason – And Action,” the group of 14 investors called on lawmakers Monday to find long-term solutions to the U.S. budget woes and the threat of a triple-A downgrade. Among the signers: BlackRock Inc., Legg Mason Inc., Allianz Global Investors, Verizon Inc. and pension plans in North Carolina, Florida and Mississippi.

    • 5:40 pm
    • Key Republicans Oppose Plan by GOP Leaders
    • by Corey Boles
    • Add a Comment
    Two key leaders among conservative Republican lawmakers said they would oppose a proposal from GOP leadership to cut spending and raise the debt ceiling, casting doubt whether the plan will attract enough support in the House.
    Rep. Jim Jordan (R., Ohio), the leader of the conservative Republican Study Committee, said he would oppose the proposal that would reduce federal deficits by at least $3 trillion over the next decade and raise the borrowing limit in two stages over the next 17 months.
    "The credit rating agencies have been clear that no matter what happens with the debt limit, the U.S. will lose its AAA credit rating unless we produce a credible plan to reduce the debt by trillions of dollars," Mr. Jordan said.
    He said the plan put forward by House Speaker John Boehner (R., Ohio) failed to accomplish that.
    The Republican Study Committee has 178 members, which accounts for the majority of the 240 Republicans in the House.
    Sen. Jim DeMint (R., S.C.), who is seen by many as the most prominent tea-party backed lawmaker in Congress, also said he would oppose both the House GOP plan as well as a rival proposal put forward by Senate Democratic leaders on Monday.
    Mr. DeMint said both plans "punt the hard decisions" that needed to be made to tackle federal budget deficits.
    "I will work to oppose both of these downgrade deals and continue to fight for Cut, Cap & Balance," he said.
    He was referring to an earlier House Republican plan that would have implemented deeper up front cuts, capped future spending and required a constitutional amendment stating the federal government must balance its budget.
    Earlier Monday, at least one freshman GOP lawmaker, Rep. Tim Huelskamp (R., Kan) said he couldn't support Mr. Boehner's new plan to raise the debt limit in a two-step process.
    Mr. Huelskamp complained the plan would tie some $1.8 trillion in spending reductions to the recommendations of a bipartisan deficit committee.
    "America does not need Deficit Commission Version 18.0," he said in a statement. "We were promised trillions of dollars in spending cuts after tackling the 2011 continuing resolution, yet we are still waiting. If past is prologue, after 17 deficit reduction commissions since 1982, then we can anticipate these newly promised cuts will be unlikely to materialize."

  • Boehner admits that his plan is less than perfect but asserts that it is a responsible, common sense plan that will restore faith in U.S. credit. See video.

    • 6:41 pm
    • Update: Toomey Picks Lawmakers to Support Plan on Payments
    • by John D. McKinnon
    • Add a Comment
    Sen. Pat Toomey (R., Pa.) has picked up six other Republican senators, and six GOP House members, to support his proposal for a law spelling out how the Treasury should rank payments to federal creditors, contractors and others in the event that Aug. 2 comes and goes without a debt ceiling deal. Among those signing on to the Toomey plan who are expected to attend the Toomey press conference are Sens. David Vitter (R., La.), Sen. Jim DeMint (R., S.C.), Sen. Rand Paul (R., Ky.), Sen. Mike Lee (R., Utah), Sen. Ron Johnson (R., Wis.), Sen. Tom Coburn (R., Okla.) and Republican Study Committee Chairman Rep. Jim Jordan (R., Ohio). On the House side, Rep. Mick Mulvaney (R., S.C.), Rep. Scott Garrett (R., N.J.), Rep. David Schweikert (R., Ariz.), Rep. Steve Southerland (R., Fla.), and Rep. Louis Gohmert (R., Texas) have signed up.

    • 7:01 pm
    • Pelosi says U.S. must enter 'era of austerity'
    • by Danny Yadron
    • Add a Comment
    House Minority Leader Nancy Pelosi has released the following statement, despite the possibility of angering some on the left, in support of Senate Majority Leader Harry Reid’s debt ceiling plan: “It is clear we must enter an era of austerity; to reduce the deficit through shared sacrifice.”

    • 7:03 pm
    • Capital Journal: Twin Forces Paralyze Washington
    • Add a Comment
    Today’s spectacle of a dysfunctional Washington, unable to tend to even its most basic task of protecting the nation’s financial standing, may be appalling. It should not, however, be a surprise, writes Jerry Seib.

    • 7:07 pm
    • News Hub: War of Words Rages Over Debt Crisis
    • Add a Comment
    House Republican Speaker John Boehner and Senate Democratic Majority Leader Harry Reid launched competing sales pitches for their separate deficit and debt-ceiling plans, with a default deadline a little more than a week away. Jerry Seib has details. See video.

    • 7:28 pm
    • U.S. Debt Negotiators Should Look to Britain
    • Add a Comment
    The American public and its politicians can be pretty insular. But they’d do well to cast an eye across the Atlantic; specifically, toward the U.K. Read more.

  • State governments are bracing to be hit with new economic challenges no matter how the Washington debt-ceiling debate ends this week—whether in a U.S. government default, deficit-reduction deal, or debt downgrade. Read more.

    • 9:22 pm
    • Obama’s Address to the Nation on Debt Talks
    • Add a Comment
    President Barack Obama delivered a statement to the nation at 9 p.m. EDT Monday to discuss the political stalemate over cutting the country’s deficit and raising the debt ceiling. Read the statement here.

    • 9:28 pm
    • Boehner’s Address to the Nation on Debt Talks
    • Add a Comment

    Read House Republican Speaker John Boehner's statement here.

    • 9:45 pm
    • Obama Urges Action on Debt Ceiling, Saying Economy Hangs in Balance
    • by Jared A. Favole
    • Add a Comment

    President Barack Obama urged Congress to raise the nation's debt ceiling and slash the country's deficit, saying the livelihood of the U.S. economy and millions of Americans hangs in the balance.
    President Obama, in a nationally televised address from the White House East Room, also pleaded with Americans to make their voices heard. "If you want a balanced approach to reducing the deficit, let your Member of Congress know," President Obama said. He continued, "If you believe we can solve this problem through compromise, send that message."
    President Obama's address comes just a week before the country is set to run out of money to pay its bills. Such a prospect, Obama said, threatens to spark "a deep economic crisis--one caused almost entirely by Washington." He said he wants a proposal in the next few days that he can sign, and is confident the nation won't default.
    "I believe that enough members of both parties will ultimately put politics aside and help us make progress," Obama said.

    • 10:12 pm
    • How China Could Break the Impasse, And Why It Won’t
    • by Anjali Cordeiro
    • Add a Comment
    From MarketBeat:
    As the largest foreign holder of US Treasurys, China has a heft in bond markets that no other creditor can claim. The Asian giant is so powerful, in fact, that it could — if it chose — help the White House end the debt-ceiling impasse.
    Any threats from Chinese officials that the country plans to slash its Treasury holdings in response to a US downgrade would likely prompt a market selloff. And yet that could have a desirable, longer-term impact if the plunge was sharp enough to help the White House make its case to holdouts in Congress who are blocking a deal.

    So far, Treasury prices have been barely dented by the political vacillation in Washington. But a bigger drop in prices might change lawmakers’ minds and hasten an agreement, as it would expose the costs of dithering. In turn this would likely boost Treasurys again and China’s holdings would return to square one. All would be well in the world again.
    But would China ever play such Machiavellian game? Not likely, say China experts.

    • 10:22 pm
    • China Scholar: "Ugliest" Aspect of U.S. System On Show
    • by Aaron Back
    • Add a Comment
    The impasse over the U.S. debt ceiling reveals the "darkest, ugliest" aspects of the U.S. political system, a Chinese state scholar was quoted as saying in an official newspaper Tuesday.
    Members of the U.S. Congress are "holding the entire nation hostage to their private political interests," Mei Xinyu, a researcher at China's Ministry of Commerce, was quoted as saying in a commentary piece in the overseas edition of the People's Daily, an official Communist Party mouthpiece.
    President Barack Obama and the U.S. Congress are playing a game of "Russian roulette," Mei added. A U.S. default would cause chaos in financial markets, because market prices are all based on U.S. Treasury bonds, he said.
    Still, Mei said that a U.S. default remains unlikely.

    • 10:34 pm
    • Disappointing Obama Speech Weighs On USD/JPY
    • by Tatsuo Ito
    • Add a Comment
    The USD/JPY falls briefly below 78 due to "disappointing" comments by U.S. President Obama on debt ceiling issues, says Hideki Hayashi, global economist at Mizuho Securities. "The speech falls short of market expectations that the President might show a progress on the ongoing standoff," Hayashi says, adding that the absence of compromise should keep weighing on the USD later. The pair is likely to have near-term support at 77.80 but a clear break of this point could send the USD further lower. The pair is at 78.39, off its low of 77.95 earlier. "Intervention may take place below 78, but there is doubt over the effectiveness of single-handed intervention by the Japanese monetary authorities," Hayashi says.

    • 10:36 pm
    • USD/SGD Hits Record Low
    • by Gaurav Raghuvanshi
    • Add a Comment
    The USD/SGD falls in Asia to be quoted at 1.2039, a record low, after U.S. President Obama's speech urging a resolution of the impasse over raising the nation's debt ceiling leads to investors dumping U.S. dollars. "The pressure on the greenback is across the board and the weakness is likely to persist. The market will sell any dollar rallies as long as the risk of the U.S. losing its AAA rating remains," says an analyst at a local bank. The USD/SGD was quoted at 1.2080 late in Asia on Monday.

  • The USD extends its losses against the South Korean won Tuesday morning to 1,052.20 from 1,056.20 late Monday in Seoul.

    • 10:44 pm
    • CME Raises Treasurys Posted as Trading Collateral
    • by Jacob Bunge
    • Add a Comment
    CME Group Inc. (CME) told traders late Monday that they would need to post more Treasurys to cover the same amount of outstanding trades, as debate over lifting the U.S. borrowing limit intensified.
    The world's largest futures exchange operator outlined a range of increases to the "haircuts," or discounts applied to the value of traders' collateral, covering Treasurys notes, bonds and foreign sovereign debt.
    The increases ranged from half a percentage point for U.S. Treasury bills to one percentage point for Treasury notes and bonds, according to the notice from CME. The changes take effect Thursday.
    The changes were made "as per the normal review of market volatility to ensure adequate collateral coverage," according to the CME notice.
    CME on Friday told traders that it would increase the amount of collateral required to trade Treasury futures by 8% to 22%, as the debt crisis was seen ramping up volatility in the government issues underlying the contracts.

    • 0:24 am
    • Wall Street Ready To Act, But How?
    • by Matt Phillips
    • Add a Comment
    Few on Wall Street know what to do to guard against a potential default by the U.S.
    Among the questions facing investors: After such a shock, would investors run away from Treasurys, which have long served as a safe haven? Or would they run to them, out of habit? Experts who have followed Treasurys for their entire careers make compelling arguments both ways.
    On the margins, some have made moves. Some Treasurys trading desks have cut down on risk. Money-market mutual funds and hedge funds are holding more cash. Industry groups are starting to consider how to handle technical issues related to a possible default.
    Many advisers, too, have been playing it safe. "We have been in a defensive posture for most of this year," and the budget debate hasn't changed that, said Michael Maloon, a financial adviser in San Ramon, Calif. Those defensive holdings include insured certificates of deposit and short-term bond funds. "The low yields are killing us, but we are primarily concerned with principal preservation."
    Months ago, Fidelity Investments began drafting contingency plans and doing stress tests on its Treasury money-market funds for the various scenarios coming out of Washington, says Robert Brown, Fidelity's Money Market Group President.
    A couple of weeks ago, representatives from the firm began reaching out to clients and continue to keep a close eye on the news out of Washington, he says, while maintaining more liquidity than in the past.

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