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Monday, August 1, 2011

Live Blog: The U.S. Debt Battle july 29, 2011

    • 0:20 am
    • Video: China Lashes Out at U.S. Over Debt Crisis
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    The Wall Street Journal's China bureau chief Andrew Browne discusses in a video here the criticisms leveled against the U.S. by China's state-run news agency Xinhua.
    • 0:49 am
    • Asian Markets Mostly Lower
    • by Leslie Shaffer, Puja Rajeev
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    Asian markets were mostly lower Friday as the cancellation of a key U.S. House vote on the debt ceiling after it was initially delayed to Thursday evening.
    Japan's Nikkei Stock Average fell 0.6%, Australia's S&P/ASX 200 was down 0.8% at 4429.50 after hitting 4421.20, South Korea's Kospi Composite fell 0.7%, China's Shanghai Composite Index fell 0.5%, Hong Kong's Hang Seng Index was down 0.7% and India's Sensex rose 0.6%. Dow Jones Industrial Average futures were 62 points lower in screen trade.
    Tokyo, which was resilient through the morning, fell sharply on news of the vote cancellation. Earnings disappointments and weaker-than-expected June industrial production data also weighed.
    • 2:12 am
    • Australian Currency Chatter
    • by James Glynn
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    The Australian dollar was weaker Friday as investors reacted to news of further delays in Washington hampering a successful resolution to the U.S. debt ceiling debate ahead of Tuesday's deadline.
    Sean Callow, senior currency strategist at Westpac, said there was no other game in town and U.S. talks over the weekend would set the tone for trading going into next week. Callow, a student of U.S. politics, said he puts just a 55% probability on a successful end to the impasse before Asia markets open on Monday.
    Failure for the combatants in Congress to strike a deal will see "risk-off" trades dominate Monday, leaving currencies like the Australian and New Zealand dollar weaker, he said.
    Callow said support for the U.S. dollar could ironically increase as investors gravitate toward the traditional safe haven of U.S. assets. The Swiss franc and Japanese yen should also be in demand.
    "We don't have a precedent for a downgrade for a AAA reserve currency. So it new territory," he said.
    At 0600 GMT, the Australian dollar was at US$1.0952, down slightly from US$1.1037 late Thursday. Against the Japanese yen, the Australian dollar was at Y84.89, down slightly from Y85.81.
    Greg Gibbs, head of currency strategy at RBS, said investors were clearing the decks ahead of a period of uncertainty for markets, complicated by the fact that New South Wales state, where Sydney is located, will be closed for a holiday on Monday. The Australian equities market will be open on Monday.
    • 2:20 am
    • Europe to Open Lower
    • by Andrea Tryphonides
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    European stocks are expected to start deep in negative territory Friday, after the planned vote on a Republican proposal to lift the US debt ceiling is postponed.
    "As has been the case all week, developments from Washington are going to dominate the agenda," says Cameron Peacock.
    Mr. Peacock at IG Markets calls FTSE 100 index down 58 points at 5815, DAX down 79 at 7111 and Paris's CAC-40 down 50 at 3663.
    • 5:30 am
    • Dollar Falls as Risk of U.S. Downgrade Rises
    • by Andrew Monahan
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    The dollar fell to a four-month low against the yen Friday, and was down against other currencies in Asia on worries that the risk of a U.S. sovereign-debt downgrade is rising even if a last-minute deal is reached by a Tuesday deadline to avoid default.
    The greenback dropped to a fresh more than four-month low against the yen at ¥77.48, but has recovered and was recently at ¥77.65, unchanged from Thursday in New York.
    "I'd say 90% or more of people in the market have priced in expectations for the U.S. to avoid a default, but with this now down to the wire, there's a real threat of sovereign downgrades regardless of the outcome," said Mitsuru Sahara, a senior foreign-exchange dealer at Bank of Tokyo-Mitsubishi UFJ.
    Dealers said the continued political discord in the U.S. may tarnish the dollar's long-time status as the safest place to park funds in turbulent times. The Swiss franc and the yen, currencies of countries that both have large current account surpluses, have benefited on this trend.
    But in his most recent bid to talk the yen down to stave off further damage to Japan's key export sector, Finance Minister Yoshihiko Noda reiterated Friday that the currency's recent gains "are not in line with the economy's fundamentals."
    The Bank of Japan is expected to keep interest rates at near-zero levels for the foreseeable future, which should decrease the appeal of holding the currency.
    Noda suggested further monetary easing could be desirable to curb further yen gains. He also said the Ministry of Finance will carefully study how long it can avoid stepping into the market.
    But some dealers said Noda's jawboning is unlikely to reverse the yen's upward trend, so long as the U.S. debt ceiling impasse persists, giving the Japanese currency the upper hand.
    • 5:41 am
    • Europe's Debt Crisis Reappears on Stage
    • by Andrea Tryphonides and Digby Larner
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    Worries over a U.S. debt downgrade and default were pushed aside briefly Friday by a warning from Moody's that it was putting Spain's sovereign-debt rating, along with those of four Spanish banks, on review for downgrade.
    "While it's debatable whether Spain could be described as facing similar challenges to Greece just yet, it's worth remembering that the yield on its 10-year bond has risen by just under 60 basis points since the start of the month," said Gary Jenkins, head of fixed income at Evolution Securities.
    London's FTSE 100 was down 0.7% at 5834.55, Frankfurt's DAX fell 1.1% to 7113.29 and Paris's CAC-40 was 1.2% lower at 3668.94. Among the euro zone's 'peripheral' markets, Spain's IBEX 35 fell 1.6%, Portugal's PSI 20 was down 1.0% and Italy's FTSE MIB was down 0.7%. Greece's ATHEX Composite was down less markedly, at 0.2%.
    The euro fell as well, dropping to $1.4275 from $1.4330 late Thursday in New York trade,  while Italian and Spanish spreads were widening.
    Adding to Friday's focus on the euro zone's debt crisis, shares in Crédit Agricole fell 2.9% after it reported late Thursday that deepening problems at its Emporiki Bank of Greece business could wipe up to €850 million ($1.22 billion) off the French bank’s second-quarter results.
    French insurance company CNP Assurances said Friday it will take a €353 million loss on its Greek bond holdings, while French mutual bank BPCE said its losses would be under €100 million.
    • 5:49 am
    • Singapore Shares End Flat on U.S. Debt Stalemate
    • by Chun Han Wong
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    Singapore shares ended flat Friday on worries over European sovereign debt and the U.S. debt ceiling stalemate.
    Analysts said sentiment across the region remains shaky, especially after U.S. lawmakers canceled Thursday night's vote on Boehner's debt-ceiling plan.
    "Uncertainty about the U.S. debt woes and skepticism that a deal will be done to avert a ratings downgrade weighed on market sentiment," CIMB said.
    The 30-share Straits Times Index closed just 0.59 point lower at 3189.26, and closed out a choppy trading week up just 0.2%
    • 5:54 am
    • Loonie May Shine Brighter if U.S. Debt Downgraded
    • by David Cottle
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    For sadly obvious reasons, a favored pastime among market analysts just now is spotting likely corollaries of a U.S. credit-rating downgrade.
    The view that not even an eleventh-hour Congressional deal to raise the debt ceiling could prevent one is widespread, as is the idea that the Canadian dollar stands to get yet another safe-haven boost from its southern neighbor's embarrassment.
    If the U.S. loses its AAA-status, Canada, with its sound fiscal situation, commodity wealth and solid economic performance, will likely benefit, said Nomura International Friday, as investors seek to replace former U.S. investment with more solid, top-rated assets.
    Positioned at the more secure end of the triple-A ratings spectrum, Canada has long been an attractive destination for capital and its allure was arguably only enhanced by the financial crisis.
    "Since the beginning of 2009, inflows to the Canadian bond market have averaged almost $8 billion per month, compared with only $1.5 billion before the crisis," said Nomura. The share of non-resident holdings of Canadian government bonds has increased to 24% from 15% over the same period.
    Canada is also seen as a safer bet than the large, triple-A rated economies of Europe, Germany, France and the U.K. These three have their own vast debts, contingent euro-zone liabilities, or both, all of which are likely to burnish the Canadian dollar's charms by comparison.
    At the moment the U.S. dollar buys CA0.9509, which is admittedly a 'big figure' above the three-and-a-half-year low struck last week, when the loonie was boosted by 30-year records against the U.S. dollar from its fellow commodity currencies in Australia and New Zealand.
    Moreover, according to technical analysts at Barclays Capital, the U.S. dollar may yet stage a stronger rally, if it can break above resistance 0.9531.
    However, this seems likely to be only short-term solace for the U.S. unit. Nomura thinks it will end the year around 0.94, Barclays Capital thinks it could slide even further, into the low 0.9330s.
    If the U.S. does lose its gold-standard credit ratings or, even worse, defaults on some short-term debt, these forecasts could prove mild indeed.
    • 6:02 am
    • U.S. Default Insurance Costs Rise
    • by Art Patnaude
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    The House's postponement of its vote on Boehner's plan to raise the debt ceiling drove U.S. CDS swaps higher Friday.
    The cost of insuring U.S. sovereign bonds with credit default swaps rose to its highest since March 2009; the five-year credit default swap spread on Treasurys was three basis points wider at 67 basis points, according to data-provider Markit.
    This level means it now costs an average of €67,000 a year to insure €10 million of debt issued by the country.
    CDS are derivatives that function like a default insurance contract for debt. If a borrower defaults, sellers compensate buyers.
    One-year CDS protection cost 87 basis points, a rise of five-basis points from the closing level Thursday.
    Uncertainty surrounding the debate has kept investors on edge, although the consensus among credit analysts is that a compromise will be reached by the Aug. 2 deadline.
    However, "maybe I am being too optimistic because I am approaching the situation from a logical standpoint whereas a lot of the people actually involved might be approaching it from a political or at least a non-rational viewpoint," Evolution Securities strategist Gary Jenkins wrote in a note.
    Barclays Capital credit strategists said in a note that the effects of a default would be manageable, but that the long-term effects could be substantial.
    • 7:59 am
    • Where Are The U.S.'s Bond Vigilantes
    • by Alen Mattich
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    If there really is a rising risk of a U.S. default, why have Treasury bond yields been falling?
    Surely, default risk ought to be met with higher bond yields as investors demand a premium for the possibility they won't be paid. A brief glance at the euro zone's bond markets shows just how demanding investors can be when they start to worry.
    That investors are worried about a U.S. default is clear from the price of insuring U.S. government debt. The price of credit default swaps on one year U.S. Treasury bonds has shot up to 0.75 percentage points from the narrow range of around0.25 percentage points where they traded through most of the first half of this year.
    The fact that it's more expensive to buy CDS protection for one year U.S. debt than for five-year debt indicates that investors are most worried about the current impasse.
    How then do you reconcile these two facts: investors are worried the U.S. government will default on its debt, but they continue to buy Treasury bonds.
    Perversely, it could be that investors are buying Treasury bonds precisely because of fear, according to Tyler Cowen of George Mason University, writing on his Marginal Revolution blog.
    Given the U.S. prints its own money, it seems incredible that it would actually renege on its debt. Even if coupon payments are delayed, they'll undoubtedly be covered eventually.
    Investors looking for liquid safe havens don't have many alternatives. Non-Japanese investors don't like Japanese government bonds because they yield even less than Treasury bonds, Japan's huge load of public debt notwithstanding.Investors like Germany and have confidence in the German government, but German bunds also happen to be priced in euros, a currency that has at least as many potential problems as the dollar. The Italian government has issued plenty of bonds but...
    The flight to safety has sent gold and the Swiss franc rocketing, but there's not enough of either bullion or Swiss bonds to adequately replace Treasury bonds.
    Then there's the small matter of investors who have interests other than maximizing profits in mind. Like the Chinese government. As long as China pursues a mercantilist policy it needs to buy U.S. bonds. And it will do so whatever Congress and the White House decide over the coming days.
    Treasury bonds aren't guaranteed demand. But as long as there are few alternatives for nervous investors, they'll continue to be supported.
  • House Speaker John Boehner just didn’t get it right Thursday. Today, he gets to do it again.
    In the 1993 movie “Groundhog Day,” Bill Murray plays a misanthropic weather man forced to relive the same day over and over until he figures out how to be a decent person. For Mr. Murray, there was a happy ending. How Washington’s political remake will end is anyone’s guess.
    The failure of Mr. Boehner and his lieutenants Thursday to round up the votes to pass their bill to cut the federal deficit and raise the U.S. debt limit exacerbated the jitters in financial markets over night. The Aug. 2 deadline by which the Treasury has said the country is at risk of default is four days and a few hours away.
    The Financial Times today highlights a switch in the status of the U.K. and the U.S. in the eyes of debt investors. For the first time in 15 months, the U.K.’s borrowing costs are below those of the U.S.
    The Los Angeles Times offered a slightly more hopeful take with a story that reassures readers the Treasury could keep paying bills until as late as Aug. 15.
    The tabloid New York Daily News is less sanguine, editorializing: “If Congress doesn't deal on the national debt, the country will be in a world of trouble.”
    Political commentators at both ends of the spectrum expressed frustration.
    Conservative blogger Erick Erickson at Redstate.com:
    “The vote now is all about fear and messaging — fear of blame and a very weak message. In fact, the House will send a weaker message than Cut, Cap, and Balance. It’ll also get less votes in either House than Cut, Cap, and Balance.”
    Paul Krugman at the New York Times writes that the country is at “the edge of disaster,”  fumes that Republicans “have, in effect, taken America hostage,” blasts Democrats for not fighting back and takes a hard swat at the media for good measure.
    Mr. Boehner, meanwhile, has a very important day ahead. As Rep. Patrick McHenry (R., N.C.) tells Politico: “It’s all on the line.”
    • 9:23 am
    • President Obama to Speak
    • by Joseph B. White
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    President Barack Obama will speak out about the debt ceiling fracas at 10:20 a.m. this morning. In the backdrop: Discouraging new data on the sluggish growth of the economy. The U.S. economy grew by just 1.3% during the April-June period, the Commerce Department said. Worse, the 1.9% growth figure originally reported for the January-March period was revised down to just 0.4%. Why the change? Consumers and the federal government spent less than Commerce originally estimated, and businesses built up less inventory.
    • 9:28 am
    • House Leaders Crank Up the Lemonade Machine
    • by Laura Meckler
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    The morning after the House postponed, again, a vote on a debt ceiling increase, the Republican leadership was working overtime to make lemonade out of lemons. “Part of changing the way Washington works is ending the old practice of forcing bills through the House in the dark of night. Our predecessors did that regularly – we will not,” a Republican aide said this morning. Or… maybe they just didn’t have the votes. Either way, the aide said a vote is “still expected later today.”
    He added that the House “remains committed to preventing default,” as well as making sure the size of spending cuts exceed the size of the debt limit increase, without tax increases, markers the House GOP set down early. Then he tried to blame the Senate, which waited around last night, hoping to receive the House bill and then immediately dismiss it. “It’s clear the ball is in the Senate Democrats’ court,” he said.
    • 9:41 am
    • Republicans and Democrats Parlay, Separately, At 10 a.m.
    • by Rob Wells
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    House Republicans are set to gather in a closed meeting at 10 a.m. Friday to discuss the way forward after House Speaker John Boehner (R., Ohio) postponed a vote on his debt ceiling and deficit reduction plan late Thursday evening.
    A senior GOP aide said there were no plans to amend the bill Thursday night but that potential changes to the legislation would be discussed during the Republicans’ Friday morning meeting.
    Senate Democrats also are scheduled to hold a 10 a.m. closed meeting to discuss the way forward.
    Senate Democratic Whip Richard Durbin (D., Ill.) said lawmakers are "running out of time and options" to move legislation before the Aug. 2 deadline to raise the U.S. debt ceiling. Without action by then, the U.S. risks defaulting on its financial obligations.
    • 9:49 am
    • Reid Says He’s Invited McConnell to Make a Deal
    • by Joseph B. White
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    Senate Majority Leader Harry Reid (D., Nev.) says he has asked Minority Leader Mitch McConnell (R., Ky.,) to “sit down with me” and negotiate a deal to avert a possible federal debt default.
    Mr. Reid, in a text circulated by his office, says he will take action by the end of the day today on “the Senate’s compromise legislation,” which is, in fact, a proposal Mr. Reid has fashioned to cut $2.5 trillion from federal spending over the next decade and lift the cap on federal borrowing enough to see the government  through the 2012 election.
    “This is our last chance to save this nation from default,” Mr. Reid says.
    • 10:04 am
    • Anemic GDP Figures Rattle Stocks
    • by Dave Kansas
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    Stocks are down out of the gate, with the Dow Jones Industrial Average shedding 120, or 1%, to 12119. Other major measures are down in similar fashion.
    While the debt dicker debacle in Washington is putting pressure on the markets, the Gross Domestic Product News earlier this morning is probably the chief reason for the downdraft.
    Read more at the MarketBeat blog.
    • 10:10 am
    • Video: Blinder Calls for Tax Credit for Job Creation
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    In an interview with E.S. Browning, former Federal Reserve Vice Chairman Alan Blinder proposes a policy for job creation that would see companies receive a tax credit for increasing their payrolls.
    See the video at the Real Time Economics blog.
    • 10:12 am
    • Senators Talk About the Meaning of Compromise
    • by Joseph B. White
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    Senate leaders recessed a short while ago after trading views on the importance of “compromise.”
    “I have compromised my whole life,” said Majority Leader Harry Reid, (D., Nev.) after appealing to Minority Leader Mitch McConnell to meet with him today to start hammering out a deal to avoid a potential debt default Aug. 2.
    Sen. Lamar Alexander (R., Tenn.) responded that he is hopeful Messrs. Reid and McConnell can strike a bargain, but took issue with Mr. Reid’s characterization of his proposal for cutting spending and raising the debt limit as a “compromise.”
    “To suggest that the majority leader’s proposal .. is a compromise is a little hard to accept. It’s a Democratic proposal.”
    Mr. Alexander then suggested that Senators and their staffers may want to rethink their weekend plans: “I hope the spirit of today, tomorrow, and Sunday is we spend less time plotting how we can defeat each other’s proposals, and more time working together.”
    • 10:27 am
    • Gold Hits Fresh Intraday Records
    • by Tatyana Shumsky
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    Gold has turned around quickly and rapidly and has set a series of fresh intraday records. Latest one is $1,637.50 an ounce. There’s no sign that investors are tiring of the safe haven play amid Washington’s indecision. This is despite the fact that the yellow metal is poised to close out July up 9%. “The fact is, we’re getting to the deadline and there’s no tangible progress,” said Adam Klopfenstein, senior market strategist with Lind-Waldock.
    • 10:29 am
    • White House Uses Weak GDP to Warn on Debt Stalemate
    • by Joseph B. White
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    Austan Goolsbee, head of the White House Council of Economic Advisors, used comments on today’s weak economic growth figures to prod Congress to resolve the stalemate over the debt limit, which could lead to a federal default if not resolved by Aug. 2.
    “We are at a fragile moment in the world economy and cannot afford to do anything to undermine our recovery at a moment such as this,” Mr. Goolsbee wrote. The GDP report, he added, “also underscores the need to end the uncertainty surrounding the risk of default and put in place a balanced approach to deficit reduction that phases in budget cuts, instills confidence, and allows us to live within our means without shortchanging future growth.”
    President Barack Obama was scheduled to address the debt limit issue at 10:20 a.m. He’s late.
    • 10:36 am
    • iPhone. iPad. How About iNation?
    • by Joseph B. White
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    Maybe the U.S. government’s way out of its debt problem is to hand it over to Steve Jobs and his crack team at Apple Inc. At theAtlantic.com, senior editor Derek Thompson reckons that Apple has as about $76 billion in cash on hand, about as much as the U.S. Treasury, and maybe a little more.  His article is making the rounds, as commentators search for fresh ways to give human scale to the mind-boggling federal debt crisis.
    You can read the article here.
    • 10:54 am
    • Obama: Need to Avoid Default 'Increasingly' Urgent
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    President Obama addressed the nation and in his speech, made some key points:
    • Need To Avoid Default 'Increasingly' Urgent
    • Two Parties Aren't 'Miles Apart'
    • Urges Congress To Find Common Ground
    • Two Parties Aren't 'Miles Apart'
    • 'There Are Plenty Of Ways Out Of This Mess'
    • 10:58 am
    • House GOP Leaders to Amend Debt Bill in Bid to Win Votes - Aide
    • by Rob Wells
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    • House Debt Bill To Require Congress To Pass Balanced Budget Constitutional Amendment Before Ceiling Increase - Aide
    • Previous House Debt Bill Only Required Vote On Constitutional Amendment
  • President Barack Obama on Friday said Democrats and Republicans aren't "miles apart" on a deal to reduce the nation's deficit and urged Congress to compromise just days ahead of the U.S. faces a potential default and a possible cut to its credit rating.
    "We are almost out of time," President Obama said in a televised statement from the White House.    President Obama said there are "plenty of ways out of this mess," and urged Republicans to compromise. He said he was open to a potential legislative trigger mechanism that would force spending cuts.
    He said the U.S. could lose its AAA credit rating  not because the U.S. lacks the capacity to pay its bills, ``but because we didn't have a AAA political system to match our AAA credit rating."
    In a line aimed at conservative Republicans who oppose tax hikes, Mr. Obama said a lower credit rating could amount to a tax increase.
    "Make no mistake, for those who say they oppose tax increases on anyone," President Obama began, "a lower credit rating would result potentially in a tax increase on everyone in the form of higher interest rates on their mortgages, their car loans, their credit cards, and that's inexcusable."
    His comments come as the House postponed a vote late Thursday on a plan from House Speaker John Boehner (R., Ohio)  to raise the U.S. borrowing limit amid a lack of support from conservative GOP members. The delay leaves the government's credit status in question just days before the U.S. begins running out of money to pay its bills.
    It's unclear if the plan will be voted on later Friday, although a Republican aide said the Boehner bill will be revised to somehow require Congress to pass a balanced budget constitutional amendment before enacting a debt ceiling increase. The states would have to ratify any such measure in order for the U.S. Constitution can be amended.
    The political brinkmanship over the debt ceiling has gone on now for months, though the consequences have increased as the U.S. approaches Aug. 2. The Treasury Department has warned the U.S. will run out of money to pay its bills then, and ratings agency's have warned they may downgrade the government's credit status if Congress doesn't begin to solve the country's fiscal woes.
  • House Republican aides say GOP leaders could amend their stalled debt ceiling bill to require Congress to pass a constitutional amendment to balance the federal budget before lifting the current $14.3 trillion cap on government borrowing.
    The earlier House leadership bill only required that Congress vote on the balanced budget proposal. Since the House bill is dead on arrival in the Democratic Senate, the main point of this change is to persuade dissident House conservatives to vote for House Speaker John Boehner’s proposal today, rather than continue to leave Mr. Boehner hanging in political limbo.
    • 11:24 am
    • Club For Growth Names Its Terms
    • by Jonathan Weisman
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    The Club for Growth, a conservative political action committee influential with tea-party Republicans in the House, says it will accept House Speaker John Boehner’s bill to lift the debt ceiling – if it is amended to require passage of a balanced budget constitutional amendment before a second debt-ceiling increase.
    “The Club for Growth has long supported a Balanced Budget Amendment to the Constitution as a condition for solving our debt crisis. We strongly believe that a Balanced Budget Amendment is the piece of the puzzle that puts us on a path to fiscal responsibility and fundamentally reforms our broken budget process. If this new bill accomplishes that goal then the Club for Growth will withdraw its opposition to the Boehner plan and will not key vote against it,” said Club for Growth President Chris Chocola.
    The addition of the balanced budget provision has become the key demand of balking conservatives in the House. While such a move could garner the handful of votes Mr. Boehner needs to pass the bill, it would make it all the more unpalatable in the Senate. Any constitutional amendment requires a two-thirds majority in both houses of Congress before it is submitted to the states, and the balanced budget amendment has nowhere near that support.
    But at least the change would move the process along.
  • Here’s the Washington Wire Cliff Notes version of President Barack Obama’s brief remarks this morning on the debt and spending stalemate:
    Forget the House. Please.
    Democrats and Republicans in the Senate, I’m counting on you to get me something I can sign to end this mess by Tuesday. Look at how much your plans have in common: $2.5 trillion in cuts, plus or minus. $2.4 trillion in new leeway on the debt limit. Wrap it up, I’ll take it. You want some sort of mechanism to compel the cuts to actually happen? You want to adopt the McConnell idea of giving Congress a second vote on the debt ceiling that allows me to raise it even if lawmakers disapprove? OK.
    Don’t make me say again that if this isn’t fixed, Social Security checks and veterans benefits and payments to businesses in your district might not go out on time.
    Investors? Foreign Creditors? We’re going to get this done. Really. Stay cool. Turn off the TV. Take the weekend off.
    • 11:38 am
    • Russian Officials Wonder Where to Park Their Cash
    • by Ira Iosebashvili
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    The U.S. debt debate is prompting second thoughts in Russia about the wisdom of parking roughly 45% of its $530 billion in reserves in dollar assets.
    An economic adviser to President Dmitry Medvedev said Friday that  Russia should strive for an agreement to hold Chinese debt and diversify away from the dollar amid worries that the U.S. debt may lose its AAA rating even if an outright default is averted.
    "I think the way out for Russia is to somehow negotiate a deal with China where Russia would hold yuan assets to diversify," said Sergei Guriev, director at Moscow's New Economic School and a member of a commission advising the president on national projects.
    "In principle, AA is not bad, but of course psychologically it is very different from AAA. The problem is there is no alternative. The euro is not in great shape either," Mr. Guriev said.
    Russian holdings of U.S. Treasury securities fell to $125.4 billion in April 2011 from $176.3 billion in October 2010, Treasury Department data showed. Kremlin economic aide Arkady Dvorkovich last month said Russia will look to cut its share of U.S. debt instruments further.
    Russian officials continue to insist--publicly and privately--that they don't see any possibility of a U.S. default. Deputy finance minister Sergei Storchak said this week that he had met with counterparts in the U.S., who assured him a compromise will be reached.
    • 12:16 pm
    • When Donkeys and Elephants Fight...
    • by Bob Davis
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    China, the largest U.S. creditor with over $1 trillion in Treasurys,  Thursday vented its frustration with the U.S. debt impasse in some of the strongest language from Beijing so far.
    The Xinhua news agency said in an opinion piece that countries across the world are once again "kidnapped" by U.S. domestic politics, though a separate Xinhua article acknowledged the lack of a viable alternative for China to invest its foreign-exchange reserves, the world’s largest.
    A U.S. government official said that so far the U.S. hasn’t seen any significant change in a the pattern of Chinese bond purchases.
    The Xinhua article denounced in dramatic terms the U.S. “debt addiction” and said “political brinkmanship” between Democrats and Republicans risks strangling the fragile global recovery.
    “The ugliest part of the saga is that the well-being of many other countries is also in the impact zone when the donkey and the elephant fight. The potential collateral damage is way too heavy,” the Xinhua opinion piece said.
    • 12:20 pm
    • Adding to Europe's Quagmire
    • by Mark Brown and Todd Buell
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    The unprecedented nature of a U.S. default or downgrade is distracting bond traders in Europe from their own government debt crisis, with the outcome of U.S. talks now having a direct bearing on Europe’s fiscal quagmire.
    Following massive bailouts of the Greek, Irish and Portuguese governments, Spain and Italy are seeing their borrowing costs spiralling dangerously higher as the possibility of a U.S. default sends investors looking for safer havens, including German and U.K. government bonds.  That has focused the attention of European markets more on Washington than on Rome or Madrid.
    “There has been a huge bid for anything deemed a safe haven asset, a bid that has been propelled by an imploding euro-zone and a U.S. administration that is seemingly looking to bring its $14 trillion poker game to a spectacular finale by committing collective hara-kiri,” said Mike Riddel, fixed-income fund manager at M&G Investments in London, on the company’s Bond Vigilantes blog Friday.
    European Central Bank Executive Board member Lorenzo Bini Smaghi this week worried about shock waves affecting world markets.    "I hope they take this into account in Washington," he said in an interview with CNBC.
  • Europe’s best-managed economies are no less concerned on the fall out from a U.S. default.  Sweden’s Finance Minister Anders Borg said Friday called the stalemate in Washington and “irresponsible political game” that puts the rest of the world at serious risk.
    “ It is clear that a country with a deficit the size of that in the U.S. must raise taxes and cut spending significantly,” Mr. Borg said.  “I can only hope that we see U.S. politicians waking up and realizing that we need to see responsible fiscal policy.”
    • 12:25 pm
    • Cantor Says This Time, House GOP Leaders Have the Votes
    • by Corey Boles
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    House Majority Leader Eric Cantor (R., Va.) said Friday that the leadership now has enough votes to win passage of House Speaker John Boehner’s bill to cut spending and lift the federal debt ceiling. Mr. Boehner was forced to delay a vote planned for last night after conservatives in his caucus balked at supporting the measure, and demanded revisions including the addition of stronger language tying increasing the borrowing limit to passage of a balanced budget amendment. Click here for the text of the proposal.
    • 12:30 pm
    • Michigan Has Enough Cash to Avoid "Immediate Crisis," If U.S. Defaults
    • by Kate Linebaugh
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    How will a federal default affect states' finances? That's what a team of Michigan treasury and budget officials are trying to figure out.
    Today Michigan's budget director John Nixon sent out a letter to the cabinet saying the state has enough reserves to avoid an immediate crisis. The cash cushion can cover federal programs for a couple weeks if payments for federally financed programs such as Medicaid are interrupted by a possible default.
    "The biggest problem to the state is going to be the cash flow. We're not going to have an immediate crisis on our hands, if they don't pass by Aug. 2, but it depends on how long it goes on," Mr. Nixon said in an interview.
    The state has enough cash reserves to go for "a couple days, but if it gets into weeks and longer, then we're actually in a position that we'll have to go in and start scaling programs back," he said.
    The team of treasury and budget officials is looking at how the state will start reducing payments to programs, and what programs will be prioritized. At the same time, states are already getting ready for reduced federal funding based on the proposed spending cuts to federal programs, Nixon said.
    Meanwhile, a downgrade to the sovereign credit rating will raise interest costs, but he doesn't think that a downgrade in itself will affect the state's rating. Any interruption to federal payments could hurt the state's rating, and just as Michigan got a bit of good news from Fitch Ratings which raised the state's outlook earlier this week.
    • 12:39 pm
    • Treasurys Don't Blink in Game of Chicken
    • by Min Zeng
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    U.S. lawmakers may be playing a game of chicken with the debt ceiling and the possibility of a debt default, but Treasurys remain the haven of choice for investors.
    A round of disappointing U.S. data heightened fears about the global growth outlook on Friday, fueling a strong rally in Treasury bond market. In recent trading, the benchmark 10-year note was 26/32 higher, pushing down the yield to 2.854%. The two-year note was 3/32 higher to yield 0.375%, while the 30-year bond was 1 8/32 higher to yield 4.181%. Bond prices move inversely to their yields.
    The benchmark 10-year note’s yield traded less than 0.05 percentage point from this year’s low of 2.814% even as the political gridlock over the debt-ceiling impasse showed few signs of thawing. The Treasury Department said it won’t be able to pay all its bills after Aug. 2, so if lawmakers don’t raise the debt ceiling by then, it could potentially default or miss some payments on maturing debt early next month.
    Worries have grown in recent days on the potentially adverse impact on the world economy from the debt problems in both the U.S. and the euro zone. Friday’s economic indicators, highlighted by a soft 1.3% U.S. growth in the second quarter and a sharp revision lower to 0.4% for the first quarter, added to concerns that the slowdown in the world’s largest economy may not be just a soft patch. And fiscal retrenchment to shrink the budget shortfall may put a further dent on the economy that hasn’t shown any firm signs of rebound from the worst recession since 1930s.
    “Economic growth is clearly flagging in the U.S., and the most troubling thing about it is that distress in Washington limits the policy response,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.
    Still, “Treasurys are still a preferred safe haven for many investors,” said Jason Rogan, director of U.S. government bond trading in New York at Guggenheim Partners LLC.
    • 12:44 pm
    • Reid Says Geithner Worried Debt Uncertainty Making It Harder for Businesses
    • by Damian Paletta
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    Treasury Secretary Timothy Geithner is warning that the prolonged debate is making it more difficult for large businesses to borrow money to fund their operations, according to Senate Majority Leader Harry Reid, who spoke on the Senate floor this morning.
    Mr. Reid (D., Nev.) said he spoke on the telephone Friday with Mr. Geithner, who urged the Senate to reach a deal soon to raise the debt ceiling. Mr. Reid called the conversation a “very sobering” one.
    A Treasury spokesperson confirmed the call took place but wouldn’t comment on specifics.
    "This morning, Secretary Geithner had a phone conversation with the Senate Majority Leader in which he underscored the need for congressional action to avoid creating more uncertainty for the economy and financial markets,” the Treasury spokesperson said.
    Since the financial crisis in 2008 and 2009, many companies have restructured their balance sheet at the urging of Mr. Geithner to make their operations less vulnerable to a liquidity crunch.
    • 12:47 pm
    • France Watches American Soap Opera
    • by William Horobin
    • Add a Comment
    The French government has kept relatively quiet about the U.S. debt debate, with the exception of comments made by the government spokeswoman and budget minister on Wednesday after the weekly meeting of ministers with President Nicolas Sarkozy. Valerie Pecresse warned that agreement in the U.S. is key for the world economy, and took the opportunity to draw parallels with Mr. Sarkozy, who is trying to persuade the opposition to support writing a fiscal rule into the French constitution.
    “We think the global economy needs an American agreement,” said Ms. Pecresse. “An agreement must be found in the U.S. on this question, both on American debt and also on the recovery of American public finances.”
    Economist Marc Touati at French financial company Assya likened the negotiations to a Hollywood soap opera, which, he said, “the Americans master better than anyone.” He added that the “Republicans are simply trying to weaken the Obama administration as much as possible to get ahead in the race for the presidency in 2012.”
  • For an analysis of the new House leadership “Budget Control Act of 2011,” click here.
  • Senate Democratic leaders say they plan to hold the first procedural vote on their plan to end the federal debt stalemate on Sunday at 1 a.m.
    Ostensibly, scheduling this vote in the wee hours of the morning is necessary to ensure that a final vote to pass the plan put forward by Majority Leader Harry Reid  can take place on Tuesday, the deadline by which Treasury has said Congress must act to lift the nation’s borrowing cap or risk an unprecedented default.
    There’s some irony, intended or not, in the Senate’s scheduling, in light of the statement earlier today by House Republican leaders that  they preferred to end the “old practice of forcing bills through…in the dark of night” – especially when they don’t have the votes to pass their proposals.
    • 1:13 pm
    • Muni-Pricing Services Brace for Downgrade
    • by Daisy Maxey
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    Securities-pricing services used by mutual funds and others to set daily values for municipal bonds are telling clients that they are prepared to handle the fallout from any downgrade of U.S. debt.
    With the impact of a downgrade virtually impossible to predict, the pricing firms have been running through various scenarios. They say they believe they can adapt quickly and continue to effectively report valuations, which is critical to a market where many securities don’t trade frequently.
    The muni market relies on trading of between $1 billion to $2 billion to reprice $3 trillion to $4 trillion of outstanding muni bonds each day, said Matt Fabian, managing director of consulting firm Municipal Market Advisors. The impact of a downgrade “does create the potential for large volatility.”
    Frank Dos Santos, vice president at Standard & Poor’s Securities Evaluations, which provides independent valuations for a variety of investments, including government and municipal bonds, expects a downgrade to make prices more volatile. While a downgrade would be unprecedented, he compares it to the fall of some so-called monoline insurers of bonds in 2008, which stirred deep uncertainty in the market. “We kind of look at this as being a similar scenario,” he said.
    Standard & Poor’s Securities Evaluations prices the entire universe of 1.5 million municipal securities, interpreting data from the muni community—including, though not limited to, trades, bids, quotes and offerings—and determining a security’s relative value.  “We feel pretty confident that we’re going to be able to keep up if this happens next week,” Mr. Dos Santos said.
    Mr. Fabian, meanwhile, notes that because the value of one bond is extrapolated from trading in others and because the market is not that liquid, “you do need to be careful with using those valuations.”
    “If just a few muni bonds are selling off very hard, the overall market can look much weaker,” he said. “If a few issues are being purchased very aggressively, the whole market can be made to seem very aggressive.” Click here for more
    • 1:13 pm
    • Companies Tap Commercial Paper Amid Debt Talks
    • by Emily Chasan
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    Companies are shoring up their cash cushions by borrowing short –term commercial paper as a hedge in the event the government doesn’t reach a debt ceiling deal by Aug. 2.
    “Over the last several days, there’s been a large uptick in the issuance of non-financial commercial paper,” said Anthony Carfang, a partner at treasury advisory firm Treasury Strategies. “Regular plain vanilla companies that have high credit ratings are borrowing very short term in the market just to make sure they have cash on hand should there be a serious problem in the market over the next few weeks.”
    But he said only the highest-rated companies are able to issue paper in that market, saying it is harder for companies rated much lower than AA to sell commercial paper right now.
    “There are companies sitting on mountains of cash that are also very actively issuing bonds in this market,” Carfang added.
    Read the full post at CFO Journal
  • Chevron's Chief Financial Officer  says the uncertainty about U.S. economic policies is one of the reasons the oil giant has been buying back its own shares at a relative moderate pace.
    Patricia Yarrington says the situation in Washington coupled with concerns about slow GDP growth in the US and China has the company on the fence.
    "I think you would agree with us there's a fair amount of uncertainty out there," she tells analysts on a conference call. Continued economic uncertainty could result in short-term fall in oil prices, she adds.
    • 1:19 pm
    • Colombia's Supply-Sider Cites Concern
    • by Charlie Roth
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    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 recently, 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 U.S.”
  • The economy is losing altitude. Now, the debt-ceiling debacle could put it into a tailspin. A raft of economic data showed the recovery weakening. And even if the government strikes a last-minute debt-ceiling deal—negotiations are to continue through the weekend—the sudden uncertainty facing businesses and banks has caused many to hoard cash. That doesn't bode well for credit creation or investment. Click here for more.
    • 1:44 pm
    • From the "It Takes One to Know One" Department
    • by Taos Turner
    • Add a Comment
    Argentina is likely the world's default champions; their $100 billion default in 2001 appears to have been the largest sovereign default in history.
    “They’re behaving like Argentines,” an Argentine congressman said today, reflecting on U.S congressmen.
    Almost nobody here expects the U.S. to default but many say Argentina could benefit from it because a weaker dollar would boost the price of Argentine commodities such as soy.
    Also, since the Argentine peso is basically tied to the dollar, a weaker dollar would imply a weaker, but more competitive peso.
    • 1:45 pm
    • RBS O'Donnell: No Decision On Next Week's Treasury Auctions
    • by Andrew Johnson and Min Zeng
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    The Federal Reserve and the U.S. Treasury Department discussed market conditions with key Treasury bond dealers Friday amid the debt-ceiling impasse but no decision was made regarding next week's new government debt supply, according to a dealer participating in the meeting.
    William O'Donnell, head of U.S. government bond strategy at RBS Securities Inc. in Stamford, Connecticut, said that there was also no discussion regarding any contingency plan should there be no deal to lift the U.S. federal government's borrowing limit by Aug. 2.
    RBS is one of the 20 primary dealers that trade directly with the Fed and are obligated to bid on Treasury debt sales. The meeting was part of the quarterly refunding process when Treasury officials exchange views with dealers about the outlook for the economy, financial markets and Treasury flows. It took place at the New York Fed.
    But this meeting garnered special attention given the continued gridlock in Washington to raise the debt ceiling. Treasury officials have said the department can't pay all of its bills by Aug 2 without an increase of the borrowing limit, raising the risk of a potential default. The stalemate also added to uncertainty about the quarterly refunding announcement scheduled on Aug. 3--when the Treasury will release the sizes of auctions for the following week.
    "We have to wait to see what happens," regarding Congress and the debt limit, said O'Donnell.
    In a statement, the Treasury said the general consensus is that the Congress should act quickly on the debt limit. A The New York Fed confirmed the meeting but deferred questions to the Treasury.
  • Moody’s Investors Service Thursday put the University of Washington on review for possible downgrade because the Seattle-based university relies heavily on the federal government for research grants and patient-care funding for its university medical center.
    University spokesman Norm Arkans said Moody’s had informed the 41,000-student institution that a downgrade was possible. The university has had a triple-A rating since 2010 and sold bonds under that rating earlier this month. In a statement the university said it had a “balanced operating performance from a well-diversified revenue stream.”
    Arkans said the administration was in conversation with Moody’s about the review, but he declined to comment further.
    • 2:27 pm
    • House Vote Set for 7 p.m.-8 p.m.
    • by WSJ Staff
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    House Republican leaders are ready to go for a vote between 7 p.m. and 8 p.m. on their latest budget cutting, debt-cap-lifting plan, aides say.
    House leaders say they are now confident they have the votes to win, after revising their  proposal to include an even stronger link between lifting the debt ceiling and congressional passage of a balanced budget amendment. House Speaker John Boehner’s magic number is 216.
    Meanwhile, the Senate is moving ahead toward key votes on its own proposal.
    • 3:23 pm
    • Senators Ready for Their Star Turn
    • by Alan Zibel and Michael Crittenden
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    Members of the Senate are warming up for their turn at center stage of the Debt Drama, with Republicans and Democrats expressing an eagerness to put an end to the show as quickly as possible.
    "We're gonna get something done,” said Sen. Bob Corker (R., Tenn.). “If we don't get it quite done by Tuesday ... I'm sure there will be a little short-term extension until we do."
    Mr. Corker is pushing for a deal that would include $4 trillion in deficit reduction over 10 years, but he sounded enthusiastic about the smaller cuts being discussed on Capitol Hill.
    Massachusetts Republican Sen. Scott Brown on Friday expressed a willingness to support either one of the rival plans grinding through the legislative process, as long as one can pass and put an end to the fracas.
    "I voted for 'Cut, Cap and Balance', I'll vote for Boehner, and I'll vote for Reid. We need to move our country forward," Mr. Brown said, referring to the competing debt plans being pushed by House Speaker John Boehner (R., Ohio) and Senate Majority Leader Harry Reid (D., Nev.).
    Sen. Dianne Feinstein (D., Calif.) said senators “don’t want to replicate the House. We’d like to work together, have something that will work for all of us.”
    West Virginia Democratic Sen. Joe Manchin, one of the more conservative members of his caucus, predicted a more bipartisan approach in the upper chamber. “Harry’s working, he’s been very conciliatory. He’s reached out. I think that him and Mitch are talking,” Mr. Manchin said. ” I think it’s going to be a long weekend.”
    • 3:42 pm
    • Treasury Weighs Delaying or Trimming Next Week's Debt Sale
    • by Andrew J. Johnson, Min Zeng and Damian Paletta
    • Add a Comment
    Treasury Department officials told key bond dealers Friday that it could delay or scale down a debt sale next week if the country’s borrowing limit isn’t raised, people familiar with the meeting said.
    But officials emphasized that decisions had not been made and that they were mulling multiple options, which depended on the outcome of talks in Congress over how and when to raise the debt ceiling. One scenario, for example, could have Treasury run smaller auctions of bonds to replace maturing debt. Investors are still expected to line up for the offerings.
    The meeting was held at the Federal Reserve Bank of New York and was part of a routine briefing officials hold with bond dealers ahead of big auctions. The meeting took on heightened importance, though, because of the uncertainty in Washington over whether the $14.29 trillion debt ceiling will be raised by Aug. 2.
    Treasury officials have said they will run out of room to borrow more money after Aug. 2, which would likely force them to cut spending by more than 40% in August alone in order to avoid a bond default.
    Several bankers familiar with the meeting said Treasury would have to scale back auctions in August if the ceiling wasn’t raised soon. It essentially would only be able to issue debt to replace maturing debt.
    At least one dealer at the meeting suggested the Treasury should consider using its portfolio of mortgage-backed securities to raise cash, though Treasury officials didn’t confirm whether they might do this.
    • 3:46 pm
    • 'Fear' Gauges Show Little Panic
    • by Neil Shah
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    Financial markets are growing increasingly nervous about the threat of a downgrade of the U.S.’s credit rating or, worse, a default. But a look at the market’s various “fear” gauges suggest few market participants are truly panicking.
    Activity in currency options and other instruments used to hedge risk is up, but still below peaks triggered by recent euro-zone debt fears. Click here for more.
    • 4:06 pm
    • House Begins Debate on Debt-Ceiling Bill
    • by Corey Boles and Michael Crittenden
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    The House of Representatives voted to begin debate on a bill to raise the debt ceiling, with a vote on final passage on the measure expected later Friday.
    The 236-186 vote was strictly along partisan lines.
    Unlike a similar vote on Thursday, there is little suspense about the outcome of Friday evening's vote. After failing to win sufficient support from their members for the bill on Thursday, House GOP leaders amended the bill to bring more Republican lawmakers on board.
    They added more stringent language on an attempt to amend the Constitution to require that the federal government to balance its budget. Under the revised legislation, both the House and Senate must pass the amendment by the required two-thirds margins before a second increase in the debt ceiling is allowed to proceed early next year.
    The earlier bill had simply stated that votes on the constitutional amendment must take place.
    With the change, most Republicans are expected to back final passage of the legislation later Friday. GOP leaders need 216 votes to pass the bill, and they are almost certain to need them all from their own ranks given the unified opposition to the package by Democrats.
    Assuming the bill is passed by the House later Friday, it would then be sent to the Senate, where leaders in the Democratic-controlled chamber have vowed to defeat it. Senate Majority Leader Harry Reid (D., Nev.) has his own plan to raise the debt ceiling that he could bring proceedings on after the House bill is defeated by senators.
    • 4:23 pm
    • Is Capitol Turmoil Chilling Corporate-Debt Markets?
    • by Nicole Hong
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    Washington’s debt donnybrook may be chilling the market for corporate credit – at least temporarily.
    Corporate borrowing in the investment-grade bond market declined to its slowest pace of the year this week. Companies sold only $3.44 billion of high-grade debt this week, less than one-fourth the $13.87 billion sold in the same week last year, according to data provider Dealogic. It is also a dramatic decline from last week, when companies sold $19.66 billion worth of bonds.
    Take out the slow period around Christmas and the latest figures show the lowest weekly volume for high-grade corporate bond issuance since the week beginning Aug. 30, 2010.
    "The country's fearful, and you don't bring new issues during a time of fear," said Keith Springer, president of Springer Financial Advisors. "Interest rates are inching higher, and companies are getting less for their bonds."
    The political turmoil in Washington isn’t the only factor. Some companies held off issuing debt this week because they were about to release earnings, and thus were subject to rules barring them from selling new debt or stock.
    Bankers say they’re ready to make the case that it’s still a good time to issue bonds. Many big U.S. companies are sitting on piles of cash, and there are signs that debt investors are keen to scoop up high-grade debt as an alternative safe haven to U.S. Treasurys, which credit-rating agencies have warned may be downgraded.
    "If there's a doubt in the U.S. government's ability to pay off their debt, there's no doubt in Microsoft's ability to pay," Mr. Springer said. "They have enough money."
    • 4:27 pm
    • Stocks Post Biggest Weekly Fall in a Year
    • by Steven Russolillo
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    U.S. blue-chip stocks fell, posting the biggest weekly decline in a year, as a blur of debt-ceiling developments left the market uncertain over the course of Washington's deadlocked negotiations.
    The Dow Jones Industrial Average closed down 96.87 points, or 0.79%, to 12143.24, in a volatile session. The blue-chip index, which dropped as much as 157 points earlier in the day, has suffered six straight declines dating to last Friday. Click here for more on today's markets.
    • 4:42 pm
    • GOP Conservative Leader Still Opposes Revised Boehner Bill
    • by Kristina Peterson
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    Even after House Republican leaders scurried to change their bill to mollify conservative Republicans, the leader of the Republican Study Committee said Friday afternoon that he could not support any proposal to raise the debt ceiling that wasn't immediately linked to a constitutional balanced-budget amendment.
    Just hours before the House was scheduled to vote Friday evening, Rep. Jim Jordan (R., Ohio) said he would  support raising the country's $14.29 trillion borrowing limit only if such a measure was immediately linked to passing an amendment requiring the federal government to balance its budget.
    "We have to link it now to ultimately start to fix the problem," Jordan said in an interview.
    Jordan was one of the earliest opponents of a proposal from House Speaker John Boehner (R., Ohio) that did not directly tie a two-step increase in the debt ceiling to a constitutional amendment. After failing to win sufficient support from its members for the bill on Thursday, House GOP leaders amended the bill to bring more Republican lawmakers on board.
    Under the revised legislation, both the House and Senate must pass the amendment by the required two-thirds margins before a second increase in the debt ceiling is allowed to proceed early next year.
    Jordan said the revised bill was an improvement and a "testimony to the work that conservatives have done in the House."
    The measure is still expected to pass the House with the support of most Republicans and unified opposition from Democrats.
    • 4:50 pm
    • Corning Shifts $1 Billion Out of Treasury Market
    • by Ronald Fink
    • Add a Comment
    Corning moved $1 billion of its $6.4 billion in cash into FDIC-insured non-interest bearing bank accounts during the past few weeks, treasurer Mark Rogus told CFO Journal Friday.
    The specialty glass and ceramics maker made the move out of concern that the impasse in Washington, D.C., over the U.S. debt ceiling would lead to a credit downgrade of Treasury securities.
    “We’ve been watching it closely since June,” Rogus said. He added that the company started modeling its potential exposure to a default two weeks ago.
    Read the full post at CFO Journal
    • 5:12 pm
    • Moody’s Says U.S. Could Keep Its Triple-A, With An Asterisk
    • by Joseph B. White
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    Moody’s Investors Service said today it expects the U.S. will get to keep its Aaa credit rating, “albeit with a shift to a negative outlook,” provided Congress and the White House can work out a deal to avoid missing payments to U.S. bondholders.
    Moody’s launched a review of the U.S. credit rating on July 13, as the fight over how to raise the current $14.3 trillion federal borrowing limit was starting to heat up. Moody’s review will finish when the debt limit is extended “for more than a short period of time,” the company said. That line gives some ammunition to Democrats and President Barack Obama, who have said any debt deal should lift the borrowing cap through the end of 2012.
    Moody’s also offered a definition of “default” – which could be of some comfort to conservative lawmakers who have said that action on the debt ceiling isn’t strictly necessary by the Treasury’s Aug. 2 deadline.
    “What would Moody’s consider a default? We do not consider delayed payments for obligations other than debt service to be a default.” In other words, President Barack Obama could make good on his warnings that Social Security checks wouldn’t go out, and that wouldn’t constitute a “default.”
    Moody’s calculates that in August interest payments would equal about 20% of estimated revenues. A more important test could be whether Treasury can roll over $59 billion in Treasury bills on Aug. 4.
    • 5:40 pm
    • Boehner Starts Debate on His Latest Debt Bill
    • by Joseph B. White
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    The final House vote on Speaker John Boehner’s revised “Budget Control Act” is now scheduled for 6:15 p.m. House members are launching debate on the proposal, which is the third version of a bill to cut federal spending and raise the federal borrowing limit in two steps.  Mr. Boehner is speaking now.
    “I’d like to cut through all the fog here,” Mr. Boehner says, to start. “Today we have a chance to end this debt limit crisis.”
    Mr. Boehner’s proposal says that before the President can request an increase in the debt limit, both Houses of the Congress must pass and send to the states a balanced budget amendment. That provision was added to mollify Republican conservatives, who torpedoed Mr. Boehner’s effort to secure passage of his proposal Thursday night.
    Mr. Boehner’s bill is likely to meet a quick death in the Democratically controlled Senate, where leaders are expected to work on their own compromise proposal.
    “To the American people I would say, ‘We tried our level best,’" Mr. Boehner said.
    • 5:54 pm
    • Boehner: “I Stuck My Neck Out"
    • by Joseph B. White
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    House Speaker John Boehner (R., Ohio,) lashed out at the White House and Democrats after a tough week made tougher by a rebellion within his own caucus.
    In a speech on the House floor defending his bill to lift the federal debt ceiling Mr. Boehner blamed the White House and Democrats for the debt impasse.
    “I stuck my neck out a mile to try to get an agreement with the President of the United States. I stuck my neck out a mile.  I put revenues on the table,” Mr. Boehner said, his voice rising.
    “A lot of people in this town can never say yes,” he continued, using a line often used by Democrats to criticize his party. “Put something on the table!” Mr. Boehner shouted, addressing Mr. Obama and his party. “Tell us where you are.”
    A raucous debate is now underway as Republicans and Democrats spar over last minute Democratic maneuvers to delay passage of Mr. Boehner’s proposal.
  • Catch up on the Journal's recent debt-ceiling graphics.
    • 6:08 pm
    • Companies Step Up Efforts To Safeguard Cash
    • by Ronald Fink, Vipal Monga and Emily Chasan
    • Add a Comment
    Corporate finance executives are taking steps to make sure their cash is protected and credit lines are secure to prepare themselves for the possibility of a U.S. government ratings downgrade or even default.
    Zamir Rauf, chief financial officer of Calpine Corp., said the power company expects to keep a higher cash balance and reduce the company’s exposure to money markets. The CFO said he was being conservative to ensure the company has enough cash in the bank to get through the rest of the year on the off chance it becomes difficult to withdraw from money market accounts.
    “It doesn’t really change anything,” Mr. Rauf said. “It’s like keeping a little more cash in your wallet just in case,” Mr. Rauf said.
    Corning Inc. moved $1 billion of its $6.4 billion in cash into FDIC-insured non-interest bearing bank accounts during the past few weeks out of concern that Treasury securities might be downgraded, Treasurer Mark Rogus told CFO Journal Friday. The $1 billion covers about three months of payables at the specialty glass and ceramics maker. The company wanted to ensure it wouldn’t be forced to sell securities to cover costs.
    Mr. Rogus acknowledged that Treasurys would still be high in quality even after a downgrade and that Corning’s principal would be safe in them, but he said he worried that the Treasury market would become more volatile, which could impact the company’s liquidity.
    Conceding that a downgrade might merely raise interest rates by a few basis points, he said he wasn’t interested in taking the risk for the extra yield. “A couple of basis points isn’t worth it,” he said.
    Consulting company Aecom Technology replaced its $600 million revolving credit line maturing in 2012 last week with a $1.05 billion revolver expiring in 2016 to address its concerns over disruptions in the short-term credit markets. Mike Burke, the company’s chief financial officer, said Aecom is watching the debate in Washington closely and may consider adjusting the structure of its debt – most of which floats with prevailing interest rates -- in the coming months.
    “We are constantly considering our floating versus fixed rate position, and the current situation in D.C. certainly influences our thinking,” Mr. Burke said in an email.
    Despite fear of a freeze in short-term funding markets, such as the one that followed Lehman Brother’s collapse, the commercial paper market for corporate issuers seems to be holding up. As the week progressed, rates for the nonfinancial commercial paper remained relatively stable, with one-day paper at 0.05% on July 28, up from 0.04% on July 22. The rates were identical for seven-day paper, while 90-day commercial paper rates had dropped from 0.14% to 0.10% over the span, according to data by the Federal Reserve.
    The total amount of nonfinancial corporate commercial paper outstanding stood at $206.3 billion for the week ended July 27. That was down from $210.2 billion a week earlier, but up from $203.8 billion at the end of July 13.
    Bemis Company is extending maturities "as far as possible" on its $300 million in commercial paper because of the ongoing uncertainty over the debt ceiling, CFO Scott Ullem said.
    Most CP matures between one and three months, but can mature in as little as one day.
    Mr. Ullem said the packaging manufacturer isn't alone in acting on concerns about a U.S. government credit default or downgrade. "We're all protecting our balance sheets," he said.
  • The House has begun voting on Speaker John Boehner’s revised "Budget Control Act."
    • 6:23 pm
    • Boehner Debt Bill Has 218 Votes
    • by Joseph B. White
    • Add a Comment
    Speaker John Boehner’s two-step plan to raise the debt ceiling has 218 votes according to figures broadcast by C-Span, with about two minutes remaining in the vote. The bill needs 216 votes to pass.
    • 6:27 pm
    • Boehner Debt Bill Heads to Senate and Likely Death
    • by Joseph B. White
    • Add a Comment
    House Speaker John Boehner’s revamped proposal to lift the federal debt ceiling passed the House tonight by a 218-210 margin, securing a hard-won victory after a bruising week of intra-party conflict for the GOP leader.
    Mr. Boehner’s measure will now go to the Senate to die.
    • 7:40 pm
    • What Happens if U.S. Debt Gets Downgraded?
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    Though Moody's said today that it expects to the U.S. to retain its Aaa credit rating, the specter of a downgrade still looms. Watch this video for an explanation of what might happen if the ratings agencies downgrade U.S. debt.
    • 8:28 pm
    • What to Look for as Drama Heads to Senate
    • by Jonathan Weisman
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    The fate of the debt ceiling rests with the Senate leadership's ability to get 60 votes, and individual senators have a lot of power to gum up the works. Here are the wild cards to watch.
    Republicans on the Edge

    Orrin Hatch (Utah) -- Usually a reliable vote with the GOP leadership, he's facing a possible 2012 primary challenge on his tea-party flank. His possible Democratic challenger, Rep. Jim Matheson, was a "no" vote on the debt ceiling increase.

    Lindsey Graham (South Carolina) -- Once a deal maker, he's moved right to align himself with the junior senator from South Carolina, Jim DeMint. He adamantly opposed the original Boehner bill, bringing the House Republicans from South Carolina with him.
    Richard Lugar (Indiana) -- President Obama has counted him as a friend and sometime ally, but the Senate veteran is locked in a difficult primary race with the tea party-backed Indiana treasurer. Mr. Lugar's vote is a test of the tea party's continued strength.
    Marco Rubio (Florida) -- Would be an obvious "no" vote given the tea-party support he needed to knock off Gov. Charlie Crist in 2010, but Mr. Rubio also has his eye on higher office, possibly a vice presidential slot on the 2012 ticket. He may want the statesman imprimatur.
    Bob Corker (Tennessee) -- The freshman senator has shown he wants to be a player in deal making on financial matters, but he is up for re-election next year. He has no serious tea-party challengers but will be on the lookout.
    The 'Hell, No' Caucus

    Sens. Mike Lee of Utah, Rand Paul of Kentucky, Jim DeMint of South Carolina, David Vitter of Louisiana and Pat Toomey of Pennsylvania.
    Democrats on the Edge

    Joe Manchin (West Virginia) -- He's said he would vote against Speaker Boehner's debt-ceiling bill and Senate Majority Leader Reid's version because neither locks in the deficit reduction the nation needs. He's up for re-election after his special election win last year.

    Claire McCaskill (Missouri) -- She enters a difficult re-election contest in a red-leaning state, trying to shore up her bona fides as an independent-minded deficit hawk. Could be a hard sell.

    Ben Nelson (Nebraska) -- Perhaps the most endangered Democratic senator in 2012, Mr. Nelson has taken his lumps for backing his leadership on health care. He may be looking for a way to assert his independence.

    Jon Tester (Montana) -- Another endangered freshman Democrat, Mr. Tester will be hard-pressed to back any debt-ceiling increase. His Republican opponent, Rep. Dennis Rehberg, could be the one deciding his vote. If Mr. Rehberg backs the Boehner debt-ceiling increase, Mr. Tester would have some room.
    Likely Democratic No Votes

    Independent Bernie Sanders of Vermont, Al Franken of Minnesota and Sherrod Brown of Ohio, who might contend that an economy with 9% unemployment isn't ready for strict federal spending caps.
    • 8:44 pm
    • Senate Defeats Debt-Ceiling Bill Passed in the House
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    The Senate has defeated House Speaker John Boehner's debt-ceiling bill, which was approved in the House earlier Friday evening by a 218-210 margin.
    • 9:37 pm
    • Senate Votes to Table Boehner's Debt Limit Bill
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    By a vote of 59 to 41, the democratic-controlled senate placed House Speaker Boehner's legislation on hold. Senate Majority Leader Harry Reid is expected to develop a different debt limit approach.
    Watch video coverage from the Senate floor.
    • 9:55 pm
    • With Debt Stalemate, Cash Is King for Investors
    • by Liz Rappaport and Matt Phillips
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    Investors, companies and small savers are stashing billions of dollars in plain-vanilla bank accounts, taking cash out of short-term markets, in an effort to shield themselves from any market convulsions caused by Washington's stalemate over the debt ceiling.
    The movement of money, akin to that during the peak of the 2008 financial crisis, is one more sign that skittishness is on the rise as officials in Washington remain deeply divided about ways to reduce the deficit and lift the debt ceiling ahead of the Aug. 2 deadline.
    Failure to reach an agreement by Tuesday could cause the U.S. to default on its debt and lead to an unprecedented downgrade of its triple-A rating, two events that some worry would roil financial markets around the globe
    The ultradefensive stance of investors and corporations, while a natural precaution, may also have the unintended side effect of curbing the amount of money flowing through the financial system.
    The pullback is adding to the stress in short-term markets. Treasury bill yields have soared in recent days, albeit from low levels. One-month bill yields rose to 0.17% Friday, up from 0.10% Thursday. At the end of June, they were essentially yielding nothing.
    Read more about how the stalemate in Washington is affecting the markets.
  • As President Obama continues to urge Senate Democrats and Republicans to compromise on a plan to raise the debt ceiling, he also implored American people to “let your members of Congress know. Make a phone call. Send an email. Tweet. Keep the pressure on Washington, and we can get past this.” Citizen calls flooded the Congressional switchboards earlier this week. Celebrities, comedians and politicians took to Twitter to lend their voices.
    Read some of their tweets on Speakeasy.
    • 11:50 pm
    • Lessons From Countries That Have Lost Triple-A Ratings
    • by Tom Lauricella
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    With the U.S. flirting with default and a credit-ratings downgrade, investors are once again in uncharted waters.
    But while a default by a country with the global position of the U.S. would likely wreak havoc on financial markets, history suggests that losing a triple-A credit rating may not bring with it the big market disruptions that some fear.
    Japan, Canada and Australia, among others, have suffered the ignominy of being downgraded from top credit ratings.
    By and large, borrowing costs remained fairly steady and, in some instances, eventually declined. Stock markets wavered but generally rebounded, while the response in currency markets varied widely.
    Read more about what history suggests a downgrade might mean.
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