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Monday, August 1, 2011

Live Blog: The U.S. Debt Battle july 26, 2011

    • 0:27 am
    • Taiwan Central Bank: No Problem in Holdings Treasurys
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    Taiwan Central Bank Deputy Gov. Chou A-ting Tuesday said the U.S. will be able to handle its debt crisis, and that "there should be no problem in holding U.S. Treasurys." Another central bank official, who declined to be named, told Dow Jones Newswires that the central bank recently held frequent meetings to discuss the U.S. debt woes and global financial markets. Taiwan is the sixth largest foreign owner of U.S. government debt, according to the latest data released by the U.S. Treasury Department.
    • 2:37 am
    • Roubini: World Economic Recovery Will Be Anemic
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    Economist Nouriel Roubini, known for his prescient warnings about the 2008 financial crisis, said Tuesday the U.S. won't default on its debt, but the country will suffer a fiscal drag. Speaking at a forum in Shanghai, he said the risk of sovereign debt crises in advanced economies is rising, and warned that the world's economic recovery will be anemic.
    "The problem of sovereign risk will be a serious one for many advanced economies for many years to come," said Mr. Roubini, a professor at New York University. For some countries a recovery will be possible, but "in some cases it's going to be mission impossible," he said.
    • 2:44 am
    • Asia's Mixed Reaction to Debt Speeches
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    Just as Barack Obama and John Boehner seem to be going in different directions, so did markets in Asia Tuesday after the speeches given by the American political heavyweights during Asia’s morning hours.
    Stocks rallied nearly across the board. Not major moves, but solid recovery from yesterday’s modest losses. The Hang Seng was up 0.9% at the lunch break to 22488, while the Nikkei 225 Stock Average was up 0.63% to 10113. Meanwhile, currency speculators gave the speeches a thumbs down and sold off the dollar everywhere.
    • 3:44 am
    • Citi: Risk Premium Building in Wary Markets
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    A note from Citi:
    Whatever the shortcomings in the latest set of fixes for the European sovereign debt crisis policymakers from different nations took action last week.  After several days of deadline setting and purposely raised expectations, as of the early morning hours of Monday, July 25, U.S. policymakers from merely different political parties have announced no agreement to break a self-imposed budget impasse. [emphasis Citi's]
    With an early August deadline approaching for some disruptive impact – even assuming that federal interest payments can be prioritized – expectations will likely remain in place this week that an outright Treasury default will still be avoided.  But with so many built up and dashed expectations for a significant bipartisan deficit reduction agreement,  a risk premium is now likely to build in financial markets increasingly wary of trusting the oh-so-promising headlines. This was suggested to some extent in overnight markets, as U.S. Treasuries fell slightly in price despite a full percentage point drop in U.S. equity futures.  The U.S. currency weakened against the euro, a currency that has been subject to existential questions of late, as well as against others.
    • 3:49 am
    • European Stocks Edge Higher on Hopes of Debt Solution
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    European stocks are slightly higher at Tuesday's open, as investors took comfort from the modest losses in U.S. stock markets on Monday despite the gridlock in Washington. Gains in Asian equity markets also kept up spirits, with many appearing to bet that the Democrats and Republicans will reach an agreement and avert a default.
    London’s FTSE 100 opened 0.1% higher, Frankfurt’s DAX was up 0.3% at 7367 and Paris’s CAC-40 0.4% higher at 3829.4.
    • 4:24 am
    • Gold Eases After Rallying to Record High on Debt Stalemate
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    Gold prices are softer Tuesday as investors are cashing in on recent gains in case Washington delivers some positive news and gold cools off after Monday's rally to a record high.  The price of spot gold was recently at $1,610.83 a troy ounce, down 0.2% on the day and off Monday's record high of $1,623.49/oz.
    • 4:37 am
    • Singapore Dollar Rises to Record High On U.S. Debt Worries
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    The U.S. dollar fell as low as S$1.2024, after changing hands at S$1.2080 in late Asian trading Monday.
    The strength of the Singapore dollar "is generally driven by dollar weakness. There wasn't an immediate reaction to Obama's speech; it's more a follow-through from last week's decline," said Saktiandi Supaat, head of FX research at Maybank. "However, Asian currencies look a bit over-heavy against the U.S. dollar at the moment, and we may see a slight correction."
    • 4:52 am
    • More from Roubini: U.S. Will See a Fiscal Drag
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    Economist Nouriel Roubini said while he doesn't expect the U.S. will default on its debt, the spending cutbacks needed to reduce the country's debt load will slow growth.
    The U.S. economy's slowdown is a chronic issue rather than merely a "soft patch," Mr. Roubini said. Growth in public consumption has been artificially boosted by the government deficit, he added, so when the authorities eventually have to reduce spending, raise taxes or cut transfer payments, not only will that be a fiscal drag, but it will also slow the growth of disposable income.
    • 6:13 am
    • U.S. Debt Talks Overshadow Euro-Zone Debt Crisis
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    The stalemate between Republicans and Democrats has this week begun to overshadow fears of the euro zone's sovereign debt crisis, but it may not last long.
    While the cost of insuring European sovereign debt against default fell Tuesday, many investors appear to believe that Congress will agree to raise the federal borrowing limit, leaving investors to return their focus to euro-zone debt.
    "We presume that the U.S. will raise the debt ceiling some time this week," said Gary Jenkins, credit strategist at Evolution Securities. He added if the numbers regarding the deficit reduction plan don't match what Standard & Poor's Corp. has said are needed to avoid a downgrade,  "we would expect the agency to downgrade the U.S. rating before August is out."
    But the consensus among market participants is that politicians in Washington will pass through a solution. As such, the European sovereign-debt crisis hasn't moved far off the radar. In a sign of the market's lingering worries, Spain's borrowing rates sharply rose Tuesday in two auctions to raise €3 billion. 
    • 6:23 am
    • U.S. Stock Futures Edge Up
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    U.S. stock futures were slightly higher Tuesday as markets geared up for a busy day of earnings from blue chips like Ford Motor Co. and 3M Co. and a clutch of economic data, while keeping an eye on debt-ceiling talks.
    About three hours before the start of trade, futures on the Dow Jones Industrial Average rose 7 points to 12557, while those on the Standard & Poor's 500 index rose 0.25 point to 1333.75. Futures on the Nasdaq 100 index fell 1.25 point to 2424.75.
    The dollar remained lower against most major rivals, as investors eyed the gridlock in talks to raise the U.S. debt ceiling. The dollar index, which tracks the dollar's performance against a basket of six other currencies, fell 0.6% to 73.693.
    "Markets seem to be expressing all of their fear through the currency, and still don't know what to do about Treasurys with the U.S. 10-year yield bobbing around the 3% level for the last few days," said Richard Kelly, head of European rates and FX research at TD Securities in a note.
    • 8:23 am
    • Dollar Stays Under Pressure
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    The dollar remained under pressure in European trading Tuesday, driven down by the continued failure of President Barack Obama and Republican leaders to cut a deal to raise the U.S. debt ceiling.
    The deadlock in talks led to broad-based dollar selling, with the buck hitting an all-time low against the safe-haven Swiss franc, a four-month low against the yen and a six-week low against the pound, and sinking to its lowest point against the Canadian dollar since November 2007.
    "The only story at the moment is the U.S. fiscal situation. So long as that's hanging over the market it's going to be hard to buy the dollar aggressively," said Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole in London.
    Even if Washington succeeds in breaking the deadlock and averting a default, as many in the market expect, concerns remain over whether the U.S. will hold onto its triple-A credit rating. A downgrade would further weaken the dollar, particularly against liquid alternatives such as the euro and Australian dollar, Valentin Marinov, a currency strategist at Citigroup, said in a note to clients.
    The euro was trading recently at $1.4472, compared with $1.4376 late Monday in New York. The dollar was at 78.06 yen, from 78.30 yen, while the euro was at 112.96 yen from 112.57 yen. The pound was $1.6396, up from $1.6276.

  • If you missed either of the televised addresses Monday night on the deficit fight, here are some highlights. Click here to watch a clip of President Obama talking about the economic effects of the debt crisis and taxes. Click here to watch a clip of House Speaker Boehner talking about debt obligations and tax increases.


  • There are few signs of panic in the Treasury market despite worries about a U.S. default and the loss of a triple-A credit rating. The 30-year bond, a whipping kid on the debt impasse lately, saw its yield increase by only five basis points Monday, and early Tuesday the bond even recovered to push down the yield by about one basis point to 4.311%.
    "The street positions are very light. The portfolios see no reason to change their position based on the debt ceiling as they feel that it will ultimately be resolved," says Tom Connor, president at Pierpont Securities who is also head of Treasury trading.


  • Debt ceiling? Whatever. The oil market is used to dealing with somewhat more dramatic political spats, such as the odd revolution or invasion. Yet it's hard to simply ignore the possible default and downgrade of the world's No. 1 oil consumer.
    Received wisdom says that if no agreement on the debt-ceiling is reached in time, Treasurys and the U.S. dollar will dive along with faith in the world's Triple-A-credit-in-chief. On balance, that ought to benefit hard assets like oil.
    But received wisdom is less useful when you're this far off the map.
    Read more from the Heard on the Street column here.


    • 10:09 am
    • Stocks Open Slightly Lower
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    Blue-chip stocks opened slightly lower as mixed news on earnings and a lack of progress on U.S. debt talks hurt investor sentiment. See market updates here.
    The Dow Jones Industrial Average has lost 131 points over the previous two sessions as the deadlock in Washington's debt negotiations has curbed investor enthusiasm and financial markets on Monday began taking seriously the prospect of a downgrade of the U.S.'s triple-A credit rating.


  • The WSJ's Alan Murray and David Wessel discuss talks to raise the nation's debt ceiling. See video
    And MarketWatch's Deborah Levine makes the case for a rising dollar, explaining how investors see the possibility of a strengthening U.S. dollar if the U.S. defaults. See video


    • 10:28 am
    • Calls and Emails Flood Capitol
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    Telephone calls and email messages are flooding into the Capitol, overwhelming the phone system and computer servers Tuesday morning after President Barack Obama urged voters to call and email Congress last night to support the Democrats' debt ceiling plan.
    An internal email sent to U.S. House Offices noted "House Telephone Circuits Near Capacity" and told users, "Due to the high volume of external calls, House telephone circuits serving 202-225-XXXX phone numbers are near capacity resulting in outside callers occasionally getting busy signals."
    In addition, some congressional Web sites started slowing down and had trouble loading shortly after Mr. Obama’s speech last night.


  • The muni-bond market is in for a hard time whether the U.S. loses its AAA status or not, MMA analysts said in a note today.


    • 11:15 am
    • Heritage to Lawmakers: Oppose the Plans
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    Heritage Action for America, the lobbying arm of the influential conservative Heritage Foundation in Washington, on Tuesday urged lawmakers to oppose the deficit-reduction plans of both House Speaker John Boehner (R., Ohio) and Senate Majority Leader Harry Reid (D., Nev.) because they don't do enough to reduce the deficit.
    The group went so far as to classify this as a "key vote." That means lawmakers who vote for either proposal will face the wrath of the group, and this could hurt their ability to fund-raise from conservative groups in the future.
    Heritage Action’s decision could make Mr. Boehner's job a little harder as he tries to secure enough votes to quickly move his plan through the House of Representatives. Several conservatives Republicans, including Rep. Jim Jordan (R,. Ohio) who heads the Republican Study Committee, have signaled they are likely to oppose the measure. Mr. Boehner can't afford to lose more than 22 or 23 Republican votes or he'll have to win over some Democrats to move his plan through the House.


  • Can Washington solve the debt ceiling crisis? Jon Stewart explores the issue in this clip from "The Daily Show" on Speakeasy.


    • 12:00 pm
    • What Would (George) Washington Do?
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    Bill McNabb, chairman of mutual fund giant Vanguard, says default is not an option. "The importance of standing behind the nation's credit has been well understood since our nation's infancy," he says, citing George Washington as his witness.
    In December 1793, Washington wrote in his fifth annual message to Congress: "No pecuniary consideration is more urgent than the regular redemption and discharge of the public debt: on none can delay be more injurious, or an economy of time more valuable."


    • 12:23 pm
    • The Debt Ceiling (Rap) Battle
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    In need of a little debt ceiling humor (we didn’t think it was possible either)? Check out the two-minute rap video by Remy, "Raise the Debt Ceiling."
    The video is posted on the Reason.tv website, which makes videos with a libertarian bent, and its lyrics are more sophisticated than you'd think, with lines like:
    Aint got no moral objection. And got no kind of complaints.
    Aint got no quantitative statutory budget restraint.
    and
    Still making it rain and yet it be so pleasing
    Did I say make it rain? I meant quantitative easing.


    • 12:47 pm
    • UPS: Uncertainty Weighs on Consumers
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    United Parcel Service Inc., explaining its expectation of flat U.S. package volume in the third quarter, is citing the stalemate over the debt ceiling as a factor.
    In a post-earnings conference call with analysts Tuesday, UPS Chief Executive Scott Davis said the economy had become extremely uncertain and that "economic growth expectations have slowed."
    He blamed the ongoing political debate over whether to raise the U.S. debt ceiling, among other factors, for contributing to the uncertainty.
    "Consumer confidence is down because of it," he said.
    He described his outlook on the upcoming peak fall shipping season as "cautious" so far, saying early indications don't show much of a buildup.
    But "if Congress and the president resolves this debt ceiling in the next week, the mood of the country could change pretty quick" for the better, Mr. Davis said.
    UPS said it expects flat U.S. domestic package volume in the third quarter and is forecasting "a little stronger" U.S. volume growth moving into the fourth quarter.


    • 1:02 pm
    • Dollar Driven Down by Debt Talks
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    Given the stalled debt talks, the dollar isn't looking attractive to traders. That said, Europe isn't looking solid either. Vincent Cignarella argues that traders are turning to high-yield currencies with low debt levels in this video.


    • 1:14 pm
    • Russia Confident U.S. Will Reach Deal
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    Russia has no doubts that the U.S. will raise its debt ceiling in time to avoid a default, Deputy Finance Minister Sergei Storchak said Tuesday.
    "My U.S. colleagues told me there is no way they would not raise the debt ceiling. It's political showing off, a factor of American politics. But the ceiling will be raised," Mr. Storchak said.

    He also said there was no global alternative to investing in U.S. debt.


    • 1:34 pm
    • USAA to Offer Advances If Military Pay Stops
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    USAA, the financial services company catering to military members, is preparing to give some members an advance loan on their paychecks if the debt ceiling negotiations disrupt their pay.
    USAA said it would provide the interest-free advances to military members on active duty who already have their military pay directly deposited in a USAA account. The one-time loan would be for eligible members' Aug. 15 paycheck.
    Several Republican lawmakers had introduced a bill into Congress looking to make military pay the top priority in the event a deal isn't reached. A spokesman for Sen. Pat Toomey (R., Pa.) said Monday he would also introduce a rule to ensure that military pay was a priority.
    On its website, USAA has said it would also work with members impacted by any debt ceiling impasse to waive various banking and insurance fees.


    • 1:51 pm
    • Treasury Market Showing Tolerance
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    So much for the fabled Bond Vigilantes," writes Société Générale's Kit Juckes.
    Despite the recent bouts of Treasurys market volatility, yields are still hovering near this year's lows. Perhaps all the global uncertainties are masking the U.S.'s debt problems, with Treasurys enjoying bids due to their safe-haven status.
    "A lack of alternative investments and the deep pockets of Asian central banks have silenced the vigilantes and we don't really get the feeling that the threat of higher funding costs should the U.S. fail to agree a debt ceiling increase by Aug. 2, is really being taken seriously," he writes.
    Some say a surge in yields is the real fire needed to scare U.S. politicians into action.


    • 2:19 pm
    • U.S. Downgrade Risks Rising, Analyst Says
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    Wall Street analysts say the risk of a U.S. default remains extremely low, but a downgrade of the country’s triple-A credit rating is a growing possibility.
    “The chance for a default next week is zero,” even if Aug. 2 deadline for Congress to raise the federal government’s borrowing authority passes without a vote, Terry Belton, global head of fixed income strategy at J.P. Morgan Chase & Co. said on a conference call with reporters.
    Mr. Belton said that missing an interest payment on the U.S. debt would be “so catastrophic” that Treasury would employ whatever alternative options it has to avoid it, such as selling its assets.
    A downgrade of the U.S. credit rating would be far less damaging than default, analysts say, but it’s not without its consequences.
    The immediate impact of a downgrade likely would be modest, but the medium-term impact would be “significant,” leading to a permanent increase in U.S. borrowing costs of around $100 billion a year, Mr. Belton said. That, in turn, would hurt economic growth, he said.
    “That $100 billion a year is money that’s being used to pay higher interest rates, and that’s money being taken away from other goods and services,” he said.


    • 2:37 pm
    • Dollar Dives on US Debt Impasse
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    Global currency investors voted thumbs down on Washington's failure to come up with a debt deal, sending the U.S. dollar to record lows against select currencies in a possible preview of what will happen if the Obama Administration and Congress fail to reach a consensus.
    Traders in Asia sold the U.S. dollar against nearly every currency in the hours after speeches by President Barack Obama and House Speaker John Boehner (R., Ohio) highlighted how far apart the two sides remain in crafting a compromise that would enable the U.S. to raise its debt ceiling and create a plan to reduce the government's borrowing needs over the long term.
    Continue reading full story.


    • 2:53 pm
    • Conservative Group Opposes Boehner's Plan
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    The conservative Club for Growth said it’s opposing House Speaker John Boehner’s debt-ceiling plan and will make the debt bill a key vote in the organization’s 2011 congressional scorecard, the second conservative group to fight the plan.
    Mr. Boehner’s legislation calls for about $3 trillion in deficit reduction in two stages over the next six months, and also includes votes on some other budget restrictions that conservatives like. He’s hoping to pass his plan through the House on Wednesday.
    Early defections by some conservatives already have put its passage in doubt. Many House conservatives prefer a more far-reaching plan known as Cut, Cap and Balance that combines current spending reductions with future spending caps as well as a constitutional amendment to require the federal government to balance its budget each year. The Club for Growth action is particularly worrisome for House leaders, because it’s known for targeting Republican lawmakers it views as insufficiently conservative and fielding candidates to defeat them.
    “The Club for Growth strongly opposes the Boehner debt limit plan,” said Club for Growth President Chris Chocola. “The Boehner plan does not achieve the goals of Cut, Cap, and Balance and doesn’t fix our fiscal mess. We are urging Club members to call their members of Congress and ask them to oppose it.”
    Earlier, Heritage Action for America, the lobbying arm of the influential conservative Heritage Foundation in Washington, also asked lawmakers to oppose the Boehner plan and one proposed by Senate Majority Leader Harry Reid (D., Nev.).
    Mr. Reid’s plan is somewhat narrower, and purports to reduce future deficits by about $2.7 trillion. But budget experts criticize some of its savings as ephemeral, and its chances in the House are worse than Mr. Boehner’s.
    Mr. Reid’s plan has the advantage of simplicity, however, because it would require only one vote by Congress – not two, as the Boehner plan would require. That’s a big priority for President Barack Obama, who’s hoping to avoid a repeat of the current donnybrook next year.
    The final result could be an amalgam of the two plans, and many conservatives still would like to see congressional approval of a balanced budget amendment.


    • 3:09 pm
    • Ron Paul’s Debtpocalypse Idea: Burn Money
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    A entry in the MarketBeat blog about Ron Paul's proposal to avoid a debt default is getting a lot of attention.


    • 3:16 pm
    • The White House Threatens to Veto Boehner's Plan
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    The White House put an end to any questions about whether President Obama will veto House Speaker John Boehner's bill to cut the federal deficit and raise the debt ceiling.
    Mr. Obama will veto the bill if it reaches his desk, the White House said in a policy statement issued Tuesday afternoon. http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/112/saps627r_20110726.pdf
    The move, while putting Mr. Obama's position on the House bill firmly on record, actually strengthens Mr. Boehner's hand as he tries to wrangle GOP votes for his plan.
    At the daily briefing with reporters, White House press secretary Jay Carney said Mr. Obama opposes the House bill and that a veto threat was a moot point because the president believes the legislation will not pass the Senate.
    If that's the case, reporters said, why hadn't the administration issued an official statement threatening a veto, as it had with other bills the president also believed would never reach his desk, such as the GOP's "Cut, Cap and Balance" bill.
    Now that's a moot point...
    EXECUTIVE OFFICE OF THE PRESIDENT
    OFFICE OF MANAGEMENT AND BUDGET
    WASHINGTON, D.C. 20503

    July 26, 2011
    (House Rules)
    STATEMENT OF ADMINISTRATION POLICY
    S. 627 – Budget Control Act of 2011
    The Administration strongly opposes House passage of the amendment in the nature of a substitute to S. 627. If S. 627 is presented to the President, the President’s senior advisors would recommend that he veto this bill.
    * * * * * * *


    • 3:33 pm
    • A Dozen House Republicans Against Boehner's Plan
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    House Speaker John Boehner is facing a conservative rebellion against his plan to raise the debt ceiling and reduce the deficit.
    So far, 12 House Republicans are on the record opposing the Boehner plan. Here’s why the numbers matter: without any Democratic support, Mr. Boehner (R., Ohio) can only afford to lose 22 Republican votes for his plan to pass the House.  And House Minority Whip Steny Hoyer (D., Md.) said "very few" Democratic representatives would back the Boehner plan, scheduled for a vote Wednesday.
    Rep. Jim Jordan (R., Ohio), the chairman of the Republican Study Committee, said there weren’t 218 House Republicans to vote for Rep. Boehner’s plan, which would lift the debt ceiling and cut the deficit by $3 trillion in two stages over the next six months.  Mr. Jordan’s group that includes 178 of the 240 Republican House lawmakers.  In addition, the conservative Club for Growth, National Taxpayers Union and Heritage Action for America, the lobbying arm of the influential conservative Heritage Foundation in Washington, are asking lawmakers to vote no on the Boehner plan.
    Rep. Jordan and other House conservatives prefer a more far-reaching plan known as Cut, Cap and Balance that combines current spending reductions with future spending caps as well as a constitutional amendment to require the federal government to balance its budget each year.
    Here is a list of House Republican congressmen who say they will oppose Mr. Boehner’s plan:   Michele Bachmann, (R., Minn.); Jason Chaffetz, (R., Utah); Chuck Fleischmann, (R., Tenn.); Phil Gingrey, (R., Ga.) ; Louie Gohmert, (R., Texas);  Tom Graves, (R., Ga.); Tim Huelskamp, ( R., Kan.); Jim Jordan, (R., Ohio); Connie Mack, ( R., Fla.); Rep. Ron Paul (R., Tex.); Steve Southerland. (R., Fla.);  Rep. Joe Walsh, (R., Ill.)


    • 3:50 pm
    • The National Debt Clock is Ready
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    So at least there’s one thing that can be certain in the debt ceiling debate: the National Debt Clock is armed and ready.
    The National Debt Clock, a mainstay for New Yorkers and downer economists since 1989, had to add a digit in the fall of 2008 when the national debt exceeded $10 trillion for the first time.


    • 3:52 pm
    • U.S. Chamber Urges Members To Back Boehner Plan
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    Amid criticism by some conservatives for Speaker John Boehner’s plan to cut spending and raise the debt ceiling, the U.S. Chamber of Commerce announced its support for the measure late on Tuesday afternoon.
    “This legislation is critical,” the group said in a letter to House members. “Default on debt obligations is not an acceptable option. The time for Congress to act is now.”

    The Chamber’s late arrival to the game could be a jolt of support for Mr. Boehner. The business community has been only a minor voice as the debt-ceiling debate has dragged on. That’s in part because of the high political stakes in the ongoing battles over spending and debt, which not only pit Democrats against Republicans, but also tea-party loyalists against more mainstream conservatives.

    The nation’s top business lobby group said it will record action on Mr. Boehner’s plan as a “key vote,” which factors into the chamber’s annual ranking of how lawmakers stand on important business and economic issues.

    Now, however, worries about the potential impact on markets and the broader economy appear to be growing as the standoff has continued.

    The odds of Congress acting to raise the debt ceiling before the Treasury’s announced Aug. 2 deadline appear to be growing longer. What’s worse, the chances of a downgrade to U.S. debt by credit-rating agencies also have appeared to grow, given the lack of guaranteed changes to individual entitlement programs such as Medicare in either of the main spending-reduction plans under consideration.

    Mr. Boehner’s plan would hand those tough issues to a special congressional committee to make $1.8 trillion in recommendations for long-term savings. A rival plan by Senate Majority Leader Harry Reid takes a similar approach, but without setting a target for cuts.

    Both plans would promise about $1.2 trillion in cuts in future discretionary spending, along with other savings. But critics say many of the savings are questionable, particularly in Mr. Reid’s plan. The Senate leader’s plan totals $2.7 trillion while Mr. Boehner’s totals $3 trillion.

    Key points of the Chamber’s letter:
    •        “While no legislation is perfect, the substitute amendment to S. 627 is a responsible approach because it would: cut spending in the immediate term by more that the increase in the debt ceiling; ensure a workable, enforceable mechanism to facilitate additional spending cuts for future debt limit increases; and allow for a vote on significant reform to the budget process.
    •        “A default on the obligations of the United States would most assuredly cause severe, immediate, and pervasive economic harm in the form of higher interest rates, a decline in the dollar, a drop in the stock markets, higher oil prices, and the loss of economic growth and jobs.
    •        “Political brinksmanship is no longer an acceptable strategy for either the White House or congressional leaders.
    •        “While this legislation is not a solution for all of America’s debt and deficit problems, it is a necessary first step in the right direction.”


    • 4:12 pm
    • National Taxpayers Union Joins Opposition to Boehner
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    Add the National Taxpayers Union to the groups opposing Speaker John Boehner’s debt-ceiling legislation. In a release, the grassroots anti-tax group says the plan fails to adhere to the Cut, Cap and Balance strategy that conservatives prefer, and also might not deliver enough deficit reduction to stave off a downgrade of the federal government’s AAA credit rating.
    The group also complains that the short-term cuts in the Speaker’s plan total only $6 billion next fiscal year. That’s $24 billion more spending than envisioned in the budget resolution drafted by Representative Paul Ryan (R., Wis.), and far short of the $111 billion in near-term reductions contained in the House’s Cut, Cap and Balance legislation. The Cut, Cap and Balance approach combines substantial spending reductions with future spending caps and a constitutional amendment requiring the federal government to balance its budget.
    “The language of the plan released last night does not, despite claims to the contrary, adequately meet the principles laid out by the ‘Cut, Cap, and Balance’ coalition, in which NTU has been a key participant, or the legislation of the same name that has passed the House,” said Andrew Moylan, NTU’s Vice President of Government Affairs.
    In addition, the conservative Club for Growth, and Heritage Action for America, the lobbying arm of the influential conservative Heritage Foundation in Washington, are asking lawmakers to vote no on the Boehner plan. However, the U.S. Chamber of Commerce is urging a “yes” vote on the Boehner plan.


    • 4:25 pm
    • Wedneday Hearing on Rating Agencies Will Be Closely Watched
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    Congressional testimony by the big credit-rating agencies on Wednesday could become another wild card in what’s already expected to be a high-stakes day of maneuvering over the federal debt ceiling and deficit reduction.
    The House Financial Services subcommittee on oversight and investigations will hold the hearing at 10 a.m. on oversight of the rating agencies.
    Witnesses include Deven Sharma, president of Standard & Poor’s, and Michael Rowan, global managing director, commercial group, Moody’s Investors Service.
    Lawmakers and markets alike will be watching closely during the question and answer period for any hints of a possible downgrade of the U.S. government’s AAA credit rating. Congress and the White House continue to struggle with how to reduce unsustainable future budget deficits while raising the debt ceiling to allow the government to continue functioning. The rating agencies have appeared increasingly impatient with the lack of progress.
    Some high-ranking Democratic lawmakers, including Senate Majority Leader Harry Reid (D., Nev.), already are saying that House Speaker John Boehner’s debt-ceiling legislation could lead to a rapid downgrade by the rating agencies. That’s because the speaker’s plan wouldn’t be assured of producing big long-term savings. It produces $1.2 trillion in up-front cuts, and promises another $1.8 trillion in savings within six months, depending on the recommendations of a special congressional committee. That could be an invitation to further gridlock, some experts say. Others say those concerns are overblown, however.
    The same concerns could exist with regard to Mr. Reid’s legislation. It promises an impressive-sounding $2.7 trillion in savings in one package. But the biggest of those savings – $1 trillion in war costs over the next decade – are regarded as ephemeral by many budget experts, even though they’re validated by congressional estimators.


    • 5:03 pm
    • Latin American Officials Hope Common Sense Prevails
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    The spectacle of Washington’s debt ceiling and deficit negotiations perilously grinding down toward an Aug. 2 deadline is being closely followed with concern by leading Latin American financial officials.

    Colombian Finance Minister Juan Carlos Echeverry, a self-defined supply-side economist trained at New York University, says he’s been closely watching the negotiations.
    "It's hard to believe the biggest economy in the world is facing a political stalemate and creating an unbearable policy uncertainty," he said. "We're a small open economy that looks at this with lots of suspicion, but I prefer to think that reason will prevail."

    A failure by the U.S. to pay its debt and a formal loss of its AAA credit rating would reverberate globally, just as the Fed’s ultra-easy monetary policy has flooded the world with dollars and pumped up many emerging market currencies, to the chagrin of developing country exporters.  As Brazilian Finance Minister Guido Mantega said Monday, a U.S. “default would have an adverse impact everywhere.”

    Its impact obviously wouldn’t be limited to U.S. interest rates, Treasurys, equities and the dollar. That’s why, like his counterpart Echeverry, Mantega is hoping that “common sense will prevail in the US.”


    • 5:12 pm
    • Senior House Republicans Making Pitches for Boehner's Plan
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    Senior House Republican staff will continue their sales campaign for Speaker John Boehner’s (R., Ohio) plan to raise the debt ceiling, with back-to-back sessions scheduled Tuesday evening for rank-and-file GOP lawmakers.
    The first will be for chiefs of staff and legislative directors for lawmakers’ offices. That will be followed by senior staff from the speaker’s office briefing GOP lawmakers on details of the bill.
    GOP lawmakers will then meet again on Wednesday morning at 9 a.m. with leadership, where Mr. Boehner and his lieutenants are expected to make a last sales pitch for their plan. The House is expected to vote on the measure later Wednesday.


    • 5:21 pm
    • Jerry Seib Discusses the Growing Opposition to Boehner's Plan
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    Watch Jerry Seib discuss the uprising facing House Speaker John Boehner's debt-ceiling plan, as House conservatives threatened to withhold support and the White House said Obama would veto the Boehner plan if it clears Congress.


    • 5:32 pm
    • What's AAA Worth to Uncle Sam?
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    Looking to put a price tag on a U.S. government ratings downgrade? Terry Belton, global head of fixed income strategy at J.P. Morgan, is here for you: he predicts Treasury rates would rise by between 60 to 70 basis points in the long term, if U.S. government was downgraded to, say, a double-A rating.
    Or, in greenback terms: $100 billion a year. Read More on MarketBeat.


    • 5:59 pm
    • Boehner Huddles With Democratic Lawmaker
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    House Speaker John Boehner, hunting for votes for his deficit-reduction package, appears to be looking beyond his own GOP colleagues for support: He just huddled with Oklahoma Democrat Dan Boren.
    Mr. Boren, who isn't running for another term, met with the speaker Tuesday before a late-afternoon round of votes. The Democratic congressman tends to vote against his own party leaders and is one of five Democrats to vote for the “Cut, Cap and Balance” bill favored by GOP fiscal conservatives that, among other things, would predicate an increase in the debt ceiling on congressional approval of a balanced budget amendment to the Constitution.
    Asked after the meeting how he planned to vote, Mr. Boren said, "I'm holding things very close to my vest." He also said he didn't know if Mr. Boehner had met with other Democrats.
    While the speaker will welcome any vote he can get, it's often inauspicious when party leaders are seeking support from members of the opposition.


    • 6:09 pm
    • Some GOP 2012ers Mum on Boehner Deficit Plan
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    House Speaker John Boehner’s new deficit-reduction plan has divided Republicans ahead of a key vote, but House members shouldn’t be looking to their leading presidential candidates for guidance. The watchword of the day is “duck.”
    Former Massachusetts Gov. Mitt Romney, who has played a muted role throughout the debt-ceiling melee, wasn’t about to take a stand on the new deficit plan. But he lobbed criticism at President Obama.
    “Gov. Romney thinks President Obama’s leadership has been an historic failure. He applauds Leader Boehner for standing firm against raising taxes when our nation can least afford them,” said Romney campaign spokeswoman Andrea Saul.
    Former Minnesota Gov. Tim Pawlenty came out against the Boehner deficit-reduction plan on Tuesday evening after taking no clear position on it earlier in the day.
    “The debt limit is a line in the sand where Republicans can force the tough decisions to fix our nation's finances, and taxpayers cannot afford for us to back down now,’’ Mr. Pawlenty said in a statement.
    Referring to Mr. Boehner’s proposal, he said: “I am for the plan that will cut spending, cap it, and pass a balanced budget amendment, but, unfortunately, this latest bill does not accomplish that."
    His rival, Rep. Michele Bachmann (R., Minn.), opposes raising the debt ceiling under virtually any circumstance. Campaigning in Ankeny, Iowa, Ms. Bachmann said the leadership of both political parties were wrong for hunting for a way to raise the debt ceiling. But she declined to tell her House Republican colleagues to oppose the speaker.
    “My colleagues will have to come to their own conclusion,” she said.
    Mr. Boehner’s plan has the backing of key Republicans and interest groups, such as House Budget Committee Chairman Paul Ryan and the U.S. Chamber of Commerce, and is opposed by others, such as Republican Study Committee Chairman Jim Jordan and the Club for Growth.


    • 6:44 pm
    • Debt Ceiling Concern Hits Veterans’ Groups
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    Valerie Jarrett, a senior White House adviser, said she met Tuesday with representatives of veterans' groups who are concerned that checks to veterans are not going to go out on Aug. 3 if the debt ceiling is not raised.
    Ms. Jarrett, speaking in an interview on MSNBC, said she held the meeting with the veterans groups in the Roosevelt Room at the White House. No word on what she told the groups.


    • 7:00 pm
    • Republicans Weigh Options in Response to CBO Projections
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    House Republicans scrambled to review their options after the Congressional Budget Office concluded their bill to raise the debt ceiling would reduce the deficit by less than GOP leaders had thought it would.
    According to a person familiar with the situation, leadership staff concluded they may have to either lower the amount they would increase the debt ceiling or find more deficit reduction measures as a way to shore up votes for the legislation.
    The CBO said the Republican bill, set for consideration as early as Wednesday, would reduce federal deficits by $850 billion over the next decade, lower than the $1.2 trillion that GOP leaders had said the bill would do.
    House Republicans had pledged that the deficit reduction measures would match or exceed the increase in the debt ceiling.
    A spokesman for House Speaker John Boehner (R., Ohio) acknowledged that changes could have to be made to the bill. "We promised that we will cut spending more than we increase the debt limit – with no tax hikes – and we will keep that promise," said Michael Steel, the spokesman. "As we speak, Congressional staff are looking at options to re-write the legislation to meet our pledge."
    The current legislation would initially raise the $14.29 debt ceiling by around $1 trillion, enough to support federal borrowing through February or March. Democrats want a debt ceiling increase that covers borrowing needs until 2012 and after the next round of elections.
    Already, Republican leaders were pushing hard to get the 217 votes they need to pass the bill.
    So far 13 Republicans have publicly stated they will oppose the legislation. The party can only afford to lose 23 votes if they aren't able to pick up any Democratic votes.


    • 7:11 pm
    • Financial Institutions Prepare to Make Pay Advances for Military
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    Financial institutions that specialize in serving military members are preparing to offer advances in the event the government doesn't deliver a coming paycheck to active-duty military members.
    USAA, the financial services company known for working with military families, and Navy Federal Credit Union, the world's largest credit union by assets, are preparing to give some members an advance loan on their pay checks if the debt ceiling negotiations disrupt their pay. First Command Financial Services, a small financial services company, is taking similar steps as well.
    If Congress doesn't reach an agreement by Aug. 2, the so-called drop-dead date as determined by the Treasury Department, the government could find itself unable to meet all its obligations. That could include pay and benefits to the military, including those on active duty. Active-duty military members are due to be paid Aug. 15.
    The increasing clamor over the debt ceiling has led the financial companies serving military members to prepare special offers that would ease the burden, at least temporarily, if the debt ceiling were breached.
    USAA said it would provide the interest-free advances to military members on active duty who already have their military pay directly deposited in a USAA account. The loan would be for eligible members' Aug. 15 paycheck, a one-time offer.


    • 7:38 pm
    • Obama Re-election Campaign Enters Debt Debate
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    President Obama's re-election campaign is picking up his pitch to Americans that they ask Congress to support his view that a deficit-reduction plan include tax increases on "the wealthiest Americans and biggest corporations,’’ as well as cuts in federal spending.
    Mr. Obama made the ask in his prime time address to the nation Monday night. "I’m asking you all to make your voice heard," Mr. Obama said. "If you want a balanced approach to reducing the deficit, let your member of Congress know."
    Obama campaign manager Jim Messina followed up with an e-mail to supporters blaming the "ideological faction of the House Republicans" for the gridlock in Washington. It urged recipients to call their elected officials.
    "The President doesn't make a direct request of all of us like this very often," Mr. Messina writes. "Take a minute right now to call your members of Congress -- then let us know how it went."
    Apparently, Mr. Messina means only Republican members. An e-mail sent to someone in Florida, for example, included only the recipient's Republican senator, Marco Rubio, not the Sen. Bill Nelson, a Democrat.
    The email also gives out the phone number for the office of House Speaker John Boehner (R., Ohio), saying he "could stand to hear what Americans like you think, too."


    • 7:43 pm
    • White House on Budget-Talk Secrecy: 'That's How it Works'
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    The White House is facing questions about the lack of disclosure of President Obama’s budget negotiations with House Speaker John Boehner.
    Its defense sounds like something that candidate Barack Obama would not have accepted: That's the way Washington works.
    "The reason why we've approached it this way is precisely to make it -- to create the optimum circumstances for a compromise," White House press secretary Jay Carney said Tuesday when asked why the White House hadn't released on paper the plan Mr. Obama was negotiating with Mr. Boehner.
    "You know how this process works . . . . On difficult issues before a compromise is reached, it becomes charged politically, and your chances of acting getting an agreement diminish significantly,’’ Mr. Carney said at his daily press briefing. “That's how it works. You know that's how it works."
    When a reporter suggested perhaps everyone in the press corps didn't know that, Mr. Carney shot back, "Well, you should. Others do."
    During the presidential campaign, Mr. Obama had argued for transparency in government operations – saying, for example, that his negotiations on health care legislation would be televised on C-SPAN.
    Asked if the lack of disclosure reflected concern that activists from both parties would tear apart the plan if it was made public, Mr. Carney said it did.
    "You know how it works," Mr. Carney said. "Of course."


  • The unique role that Treasury bonds play in short-term funding markets underscores the systemic risks to the broader economy should the U.S. default or lose its top-prized credit rating.
    The key concern is that Treasury bonds might no longer be considered top-quality collateral in repurchase agreement markets -- better known as repo -- thereby choking a primary channel of short-term funding for banks. That in turn could push investors such as U.S. money funds to cut lending to banks, stifling liquidity and pushing up the cost of funding.
    Repo, which grew to become the so-called "shadow banking system," is often regarded as the oil that lubricates the economy. Higher borrowing costs would have a broad impact, hurting everything from consumer borrowing to corporate finances. That is what Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner have emphasized in their bid to get U.S. lawmakers to reach a solution to their debt dispute before the government runs up against its borrowing limit, which the Obama administration says will happen Aug. 2 if the debt ceiling is not raised by then.
    There are about $3.94 trillion in Treasurys used as collateral for repos, according to data from J.P. Morgan. Another report from Bank of America Merrill Lynch says that roughly 74% of primary dealer repo financing--about $2.1 trillion--involves Treasury collateral.
    If the debt ceiling is not raised in time and the U.S. is forced to default, the impact on repos would be profound as the value of the collateral outstanding would immediately be put into question.
    "A sharp repricing of this collateral in response to a Treasury default would likely increase haircuts, potentially leading to significant margin calls, some forced deleveraging and a decline in lending capacity in financial markets," said market strategists from J.P. Morgan in a research note.


    • 8:15 pm
    • Dollar's Slide Likely a Trend to Continue
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    Traders sold off the dollar against nearly every currency on Tuesday, but analysts believe it's part of a bigger trend that isn't just a reaction to an impasse over the debt ceiling.
    There is a growing consensus that, even if the debt ceiling is lifted, the U.S. government's coveted AAA rating may be in jeopardy if any compromise doesn't include a long-term plan, which would mean further dollar weakness as investors move into assets that maintain their top-notch rating.

    "It's hard to imagine that a peaceful ending of the debt-ceiling problem will put a period on the weakening dollar trend," said Barclays Capital chief Japan currency strategist Masafumi Yamamoto.

    Others see the dollar's slide Tuesday as part of a broader shift of gravity in economic might away from the debt-laden U.S. toward more robust emerging markets especially in Asia.

    The appreciation of Asian currencies is "an investment theme to stay for years to come," said Fawaz Habel, senior fund manager at Value Partners in Hong Kong. The debt impasse is merely providing investors with an excuse to add more exposure to nondollar currencies to their portfolios, he said.

    Until Tuesday, the dollar hadn't traded in any particular direction in reaction to the ups and downs in the debt talks. That bred confusion among traders as to whether the dollar might even rally in the event of a default or downgrade.

    Over the past couple of years, the dollar and Treasurys have served as a "safe haven," rallying in the face of economic uncertainty, even trouble in the U.S. economy. That dynamic could be shifting.

    "It's hard now to argue that Treasurys can still be safe haven when the Treasurys themselves are causing a flight to safety," said Daniel Hui, senior foreign-exchange strategist for HSBC in Hong Kong.

    "It's been a tricky thing trading the debt-situation story," he said. Tuesday's broad move against the greenback was significant "because the market is voting to say, in this scenario, we choose to sell the dollar."


    • 8:22 pm
    • U.S. Two-Year Notes Sold At Low Yield
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    Calm U.S. Treasury yields, which could rise sharply if a risk premium on a potential U.S. debt default were being factored in, suggest "market consensus is that a deal will be reached at the last minute," says Junichi Ishikawa, FX analyst at IG Markets Securities. The market's calmness can been seen in the fact that Tuesday's two-year note auction drew decent demand, he adds. The Treasury Department was able to sell $35 billion in two-year notes Tuesday at a relatively low 0.417% yield--less than what the government expected to pay. The two-year U.S. bond yield was down 1.7 bps at 0.40% late Tuesday in New York. Still, the forex market's main theme remains USD selling on the back of the U.S. debt ceiling issue, Ishikawa says.


    • 8:26 pm
    • Oil Volatile on Thin Trading, U.S. Uncertainty
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    Crude prices are still seeking direction ahead of the known unknown of the crisis over the U.S. debt ceiling, but volatility looks to be rising in thin markets, with traders unwilling to put money on the table while the debt uncertainty hangs around. Nymex September WTI fell off a cliff yesterday at the U.S. open but then rebounded to its highest level in six weeks at $100.62/bbl before European trade finished, but the day's close at $99.59/bbl was up just 39 cents from the previous day; after hours, the American Petroleum Institute posted a surprise build in U.S. oil inventories, suggesting slackening demand. "For the larger part of this summer, macro concerns and debt-related fears are likely to dominate the fundamentals," writes Barclays Capital, likely leading to a gradual edging-down of prices over the northern summer. WTI is down 46 cents at $99.12/bbl.


    • 8:30 pm
    • Philippines FinSec: Confidence in Dollar Waning
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    Philippines Secretary of Finance Cesar Purisima said the U.S. failure to reach a debt deal is causing a "loss of confidence" in the dollar and could "accelerate the search for an alternate reserve currency." The Philippines has $69 billion in foreign currency reserves, and as with most countries, the bulk of that is thought to be held in U.S. government debt.
    "Once people lose confidence in the U.S. dollar—and they are starting to—it will affect [Americans] more than what they are fighting about now," he said.
    The Philippines is doing what it can to prepare its financial system for a Washington-led disruption, "improving our balance sheet and making sure we are as liquid as possible," Mr. Purisima said.


  • The U.S. dollar hit a fresh low late Tuesday against the Singapore dollar, quoted at S$1.2017 from S$1.2030.


    • 9:01 pm
    • Dollar Falls to 14-Year Low Against Ringgit
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    The dollar fell to a 14-year low against the Malaysian ringgit late Tuesday to MYR2.9380 from MYR2.9535.


    • 9:19 pm
    • GOP Staff Delays Debt Ceiling Vote
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    The House is now expected to vote on a bill to raise the debt ceiling Thursday, instead of Wednesday. The delay will give Republicans time to tweak the bill to make sure that the bill produces spending cuts that are larger than the amount by which the debt ceiling is raised.
    According to a person familiar with the situation, leadership staff members concluded they may have to either lower the amount they would increase the debt ceiling by, or find more deficit reduction measures in order to ensure they have the votes to pass the legislation.
    Some Republicans said they would wait to see if a tweaked bill could generate deeper spending cuts before they decide whether to vote for it.
    "I'm waiting to see the final CBO numbers," Rep. Cynthia Lummis (R., Wy.) said Tuesday evening after an informational briefing on the bill. Lummis said she had gone from "undecided to leaning yes" after hearing more of the details of the plan.


    • 9:35 pm
    • Dollar Extends Losses Against Asian Currencies
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    The dollar falls to its lowest against the Indonesian rupiah since Feb. 4, 2004, at IDR8,490.
    Meanwhile, the Australian dollar hit a 30-year high against the dollar at US$1.1028.
    The dollar also extends its losses against the Singapore dollar to S$1.1992.


    • 11:17 pm
    • The Dollar Burns, But Equities Could be Next
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    While global investors have begun expressing their fading confidence in America by selling the dollar, their next target could be U.S. equities.
    The Dow Jones Industrial Average is showing clear signs that a sharp drop is possible in the weeks ahead. Rallies in June and July have both fizzled out short of the 2011 peak made on May 2 at 12,876. The price formation on its daily chart suggests a drop toward 12,000 is possible in the next few weeks.
    If a dollar rout leads to an equity meltdown, maybe that will get the attention of law-makers in Washington and force them to come up with a meaningful reduction in the $14 trillion deficit. If not, the U.S. dollar may achieve junk status long before U.S. bonds.


    • 11:29 pm
    • Asian Currencies: A New Safe Haven?
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    Thomas Harr, head of Asian FX strategy at Standard Chartered Bank in Singapore:
    "Now more than ever, Asia is seen as a region where there are strong fundamentals...These flows coming into Asia are safe-haven flows; they are increasing even though you could say that risk appetite is not very strong."


    • 11:36 pm
    • Asian CDS Tighten As US Woes Boost Asia's Appeal
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    Asian credit default swaps are tighter, as investors start to see the stalled negotiations over raising the U.S. debt ceiling as a reason to buy Asian assets. The White House has promised to veto a Republican plan to cut spending and raise borrowing limits, if it passes a Congressional vote, which was postponed until Thursday. "The tone in Europe and the U.S. is not that great," an Asia-based trader says. "The correlation between Asia and the U.S. is breaking down." Spreads on the Markit iTraxx Asia ex-Japan CDS index are quoted at 114-115 bps vs 116-117 bps Tuesday.


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