- 8:21 am
- Recapping the Latest News
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Negotiators for the White House and congressional leaders appeared to be making progress late Saturday toward a deal to resolve the federal debt crisis that has paralyzed Washington and rattled financial markets.
Senate Majority Leader Harry Reid (D., Nev.) abruptly delayed a late-night test vote on lifting the federal debt ceiling until 1 p.m. Sunday afternoon, and said the move was made at the request of the White House.
"There are negotiations going on at the White House now on a solution that will avert a catastrophic default on the nation's debt," Mr. Reid said shortly after 10 p.m. ET. Mr. Reid said a vote that had been scheduled on his own plan for 1 a.m. Sunday would be pushed back until 1 p.m. on Sunday, 12 hours later, in order to "give everyone as much room as possible to do their work."- 8:24 am
- What the Crisis Means to You
- by Sara Murray
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Q: How is this different from a government shutdown?
A: The threat of a short-term government shutdown earlier this year came with consequences that were far less severe. In that case, the federal government had the money on hand to pay its bills, but it didn't have the congressional authority to spend it. The government announced ahead of time that current Social Security beneficiaries would receive their checks and employees learned whether they'd be furloughed.
That's not the case this time. The federal government has the authority to spend its money, but it won't have enough incoming revenue to cover roughly 40% to 45% of its bills. And it hasn't announced which bills it will pay and which it won't.
Q: When will the federal government stop paying all of its bills?
A: The nation officially hit the debt ceiling in May. And ever since, the Treasury has been using stopgap measures to keep paying its bills. The Treasury says Tuesday is the last day it can ensure the nation will pay all of its bills. Some have suggested that the government might have enough cash for a bit longer. Barclays Capital analysts estimated the Treasury could pay the bills until Aug. 10.
Read more from the Q&A.- 9:21 am
- McConnell Is Optimistic a Deal Is Near
- by Keith Johnson
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The Senate minority leader said the overall size of the deal could approach $3 trillion and “we are not going to raise taxes in this deal.” He was speaking on CNN’s “The State of the Union.”
Mr. McConnell declined to sketch out some of the details of the possible package, including what kinds of “triggers,” or automatic spending cuts, if any, might be in place to force future spending cuts if a joint committee in Congress can’t agree on recommendations. Sen. McConnell said the issue of triggers has been a primary cause of the impasse between Republicans and Democrats over the last week.
“We wasted a week,” he said.
The tentative deal sketched out late Saturday night would include an immediate increase in the nation’s debt celing by about $1 trillion, matched by spending cuts of the same order.
The second phase of the deal will be worked out by a joint committee of Congress, including an equal number of Republicans and Democrats from both chambers. The committee will recommend future spending cuts that could be as high as $2 trillion, Sen. McConnell said. He said it was “highly unlikely” the joint committee would be deadlocked.
The deal would also include votes on a balanced-budget amendment, something House Republicans have sought. Sen. McConnell said such an amendment would constrain government spending. A balanced budget amendment needs supermajorities to clear both chambers of Congress and must be ratified by three-fourths of the states.
The tentative deal sketched out by the Senate minority leader focuses heavily on spending cuts and caps, and does little to nothing to raise additional revenues. The joint committee, Sen. McConnell said, will carefully examine entitlement programs, a contentious battleground between the two parties.
“Entitlement reform is absolutely critical,” he said.
And Sen. McConnell trumpeted what could be a political triumph for Republicans: The lack of revenue increases in the deal.
“We’re not going to raise taxes in this deal,” he said. Asked about tax-reform that could close certain loopholes and effectively amount to tax hikes, he said, “There will be no tax increase.”- 10:02 am
- Economist: Debt Deal Could Prevent Recession
- by Keith Johnson
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A possible debt ceiling and deficit deal lawmakers worked on over the weekend should be enough to save the American economy from plunging over the precipice and back into recession, said Mark Zandi, senior economist at Moodys.com.
Speaking on CNN’s “The State of the Union” Sunday morning, Mr. Zandi said that the deal taking shape in Washington looks like it will be enough to “jumpstart” the economic recovery by avoiding the worst impacts of a potential default, including higher interest rates.
But he cautioned that the economic consequences of a default, and a possible downgrade by ratings firms such as Moody’s or Standard & Poors, make the resolution of the debt-ceiling impasse crucial.
“The economy hangs in the balance. If there is any misstep here…it’s very likely the economy will step back into recession,” he said.- 10:20 am
- Schumer Says Default Growing Less Likely
- by Tennille Tracy
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Sen. Charles Schumer, a top Democrat from New York, speaking on CNN's "The State of the Union," said “there is no final agreement” but that “default is far less of a possibility now than it was even a day ago.”
Mr. Schumer insisted the automatic spending cuts have to be painful for both Democrats and Republicans to swallow. Only then, he said, would both parties be incentivized to come to the table to compromise.
There has to be “a sword of equal sharpness and strength hanging over each party’s head,” he said.
For Democrats, that will most likely involve cuts to programs that are important to the party, Schumer said. For Republicans, Schumer said he would prefer the deal involve tax increases on wealthy people and plans to close tax loopholes. Schumer also said the deal could involve cuts to defense spending.- 10:23 am
- Plouffe Still Talking Revenues
- by Joseph B. White
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White House political advisor David Plouffe, on ABC’s This Week With Christiane Amanpour, suggests that any deficit cutting mechanism packaged with a deal to raise the federal debt ceiling should allow for the possibility of increased tax revenues to narrow the budget gap. Without getting into details, Mr. Plouffe said a congressional committee that could be appointed to study how to cut the deficit as part of a debt ceiling deal should consider ways to increase tax revenues. “You’re going to have to have revenue produced to close the deficit,” he said. “It’s incumbent for leaders in both parties to appoint people (to the committee) who are interested in deficit reduction.”
Mr. Plouffe also suggested that any “enforcement mechanism” put in place to assure that the congressional committee comes up with a strong deficit cutting package might have to include a trigger that raises taxes.
“The enforcement mechanism has to be strong enough to compel BOTH parties,” he said, in the context of questions that assumed Democrats don’t want deep spending cuts to entitlement programs and Republicans don’t want tax increases.
“We’re talking about a variety of options,” he said.
Asked whether there is a deal in place, Mr. Plouffe had a one word answer: “No.”- 11:34 am
- Video: McConnell Says Negotiators Are Closing In on a Deal
- by Joseph B. White
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CNN posted video of Sen. McConnell’s remarks this morning. Appearing on “State of the Union,” the Senate minority leader said a debt deal is “very close,” to the point that he could recommend it to his “members” to support. “We’re aware that Aug. 2 is a date of some significance,” he said. He wouldn’t budge on details of the timetable for a deal, saying only “soon.” Watch the video on CNN.com.- 11:53 am
- Debt Deal Triggers: Mutually Assured Misery
- by Joseph B. White
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The White House and negotiators for congressional leaders of both parties are pushing for a deal that would raise the nation’s borrowing limit in tandem with deficit reduction in a two-stage process that could result in as much as $3 trillion in spending cuts over the next decade, lawmakers said Sunday.
The terms of the second phase – which would link further borrowing leeway to a potentially far-reaching overhaul of the tax code, defense spending and the major old-age safety net programs – are still not decided, leaders of both parties said in appearances on Sunday morning news programs.
A critical issue for Republicans is whether tax increases could result from the second stage of the deficit cutting process, an outcome many would likely oppose. Senate Minority Leader Mitch McConnell (R., Ky.) said on CNN there would be no tax increases, but on CBS’s Face the Nation, Mr. McConnell hedged a bit.
The second stage of deficit cutting would be driven, he explained, by a special, bipartisan committee of Congress that would follow a script borrowed from Congress’s strategy for pushing through unpopular closures of military bases. The deficit committee would produce a package of measures to narrow the deficit, which could include spending cuts and revenue increases.
“The committee has a broad mandate to look at the entire spectrum of concerns. And certainly tax reform is .. long overdue,” Mr. McConnell replied in answer to a question about whether the committee could recommend tax increases.
Whatever the deficit committee proposes, Mr. McConnell said, would go as a package for an “up or down vote.” In other words, lawmakers could blame the independent committee for specific provisions they don’t like, even while taking credit for striking a blow for fiscal prudence.
Democrats, for their part, are fighting to avoid a mechanism that could result in automatic cuts to Social Security and Medicare. Democrats said Sunday they also expect that any longer term resolution to the deficit problem should include increased tax revenues.
In the end, Mr. McConnell and Mr. Schumer suggested in separate appearances, the deal could involve a form of mutually-assured misery for both parties, in which a failure by Congress to act on a broad-based fiscal overhaul would result in both tax increases and deep cuts to social programs.- 12:14 pm
- Sen. Graham Says No to Tentative Debt Deal
- by Joseph B. White
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South Carolina Republican Sen. Lindsay Graham poured cold water on the tentative debt-ceilng deal, calling the proposed spending-cut package a “limited victory” for Republicans and suggesting he would not vote for the measure.
“I don’t see many conservatives getting behind this. I’m not ready to vote for this,” he said. He suggested maybe half the Republicans in the House could support the measure.
Sen. Graham, who in the past has served as a bridge between Senate Republicans and the White House on contentious issues from global warming to prisoner dentention, faces a battle for reelection next year.
Sen. Graham said that the outlines of the package, which would cut almost $3 trillion in spending over the next decade, don’t go far enough to satisfy conservatives who want to see the size of government shrink. He said the federal government will still add trillions of dollars in new spending over the next decade.
“I think we can declare victory in a limited fashion,” he said.- 12:17 pm
- Senators Start Talking Again
- by Naftali Bendavid
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The Senate is now beginning debate on a debt bill proposed by Majority Leader Harry Reid (D., Nev.). The vote on “cloture,” or ending debate, is expected at about 1 p.m.
The bill will likely fail to get cloture, since 43 Senate Republicans have announced their opposition to it. That’s enough to block a final vote under Senate rules. In addition, everyone knows the real debt ceiling deal is still being negotiated among the White House and leaders of both parties in the House and Senate.
But Senate leaders are going ahead with the vote so they can keep alive a bill that can serve as the shell, or vehicle, for any deal that is reached today. “If there is an agreement that can be met, this will be the vehicle to send it back to the House,” Mr. Reid said in opening the debate.
Intensive talks are continuing in hopes of reaching a debt deal. Both sides say it’s an important to reach an agreement today—partly so global markets don’t fall when they open starting in Asia later tonight, Washington time. Senate rules also make it hard to hold a final vote by the Aug. 2 deadline, and both sides want to keep the political momentum going.
“We are cautiously optimistic,” Mr. Reid said. “There are a number of issues that have yet to be resolved, and we have to understand that. We’re not there yet.”
He added, “Optimism in recent days has often been stomped on.”- 12:21 pm
- Senate GOP Caucus Plans Meeting
- by Naftali Bendavid
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Senate Republicans plan to meet sometime after the 1 p.m. ET vote so Senate Minority Leader Mitch McConnell (R., Ky.) can lay out where things stand in the debt negotiations, GOP aides said.- 12:52 pm
- Boehner Says He'll Update House GOP on Debt Talks
- by Carol E. Lee
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House Speaker John Boehner notified GOP members that they should expect a conference call this afternoon about the debt deal he and Senate Minority Leader Mitch McConnell have been negotiating with the White House. Mr. McConnell earlier alerted Senate Republicans he would brief them on the progress of the talks at 1 p.m. No word yet from House or Senate Democratic leaders on when they will formally brief their troops.
Here's Mr. Boehner's email:
Discussions are underway on legislation that will cut government spending more than it increases the debt limit, and advance the cause of the balanced budget amendment, without job-killing tax hikes. Those talks are moving in the right direction, but serious issues remain. And no agreement will be final until Members have a chance to weigh in. I would expect a conference call for Members later this afternoon. – Speaker Boehner- 1:02 pm
- Framework of a Deal
- by By Keith Johnson and Damian Paletta
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The framework emerging over the weekend likely would allow an immediate increase to the debt ceiling, lasting through the end of 2011, accompanied by government spending reductions of roughly $1 trillion over 10 years.
To get through 2012, Congress would form a special committee made up of an equal number of Democrats and Republicans to negotiate up to $2 trillion in additional cuts as part of a package containing a further debt-ceiling increase.
Here's the latest wrap on where things stand.- 1:30 pm
- IMF's Lagarde Weighs In on Deficit Cutting
- by Tenille Tracy
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Without addressing the U.S. situation in particular, Ms. Lagarde said on CNN’s Fareed Zakaria GPS that deficit-reduction measures – such as raising taxes and reducing spending – are measures that “ha[ve] to be taken” to achieve fiscal consolidation.
She acknowledged that such measures have a down-side effect and said the key was to tackle things gradually, “making sure that the less privileged, the most exposed people, are not taking a big hit, are not suffering the most,” according to transcripts.
In the medium to long-term, deficit reduction measures – “restoring the debt pattern to something that is sensible and not outrageously high” – is good for the economies.
“If you don’t begin somewhere, you never consolidate,” she said.- 1:32 pm
- Durbin and McCain Engage in a Real Debate
- by Joseph B. White
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The Senate is sometimes called “the world’s greatest deliberative body,” usually with ironic intent. Most of the time, as anyone watching the Senate on C-Span during this weekend can attest, senators chew up the hours delivering monologues heavy with partisan talking points covered in depth by the speakers who went before.
But on Sunday, Sen. Dick Durbin (D., Ill.) and Sen. John McCain (R., Ariz.) staged a rare, and apparently spontaneous, dialogue over federal spending and the best way for the nation to rein in its exploding debt.
Mr. Durbin, a member of the bipartisan “Gang of Six” that has tried to win support for a plan to cut spending and raise more tax revenues, argued that “everything should be under consideration to reduce our national debt.”
Mr. McCain challenged him to explain how higher taxes and more spending would help the economy: “I assume that means the Senator from Illinois would advocate some form of stimulus package.”
Mr. Durbin said something more should be done to attack unemployment. Mr. McCain, in a mocking tone, replied that the Obama administration had promised that if Congress passed its roughly $800 billion stimulus plan unemployment wouldn’t rise above 8%.
“I hope the Senator from Illinois understands…that just spending more money has failed and failed miserably,” Mr. McCain said.
Mr. Durbin, instead of taking offense, chuckled. “This is almost a debate in the United States Senate. It rarely happens. Thanks for coming to the floor.”- 1:33 pm
- Senate Takes Another Small Step Toward a Deal
- by Naftali Bendavid
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The Senate just voted not to move ahead with Senate Majority Leader Harry Reid’s proposal for raising the debt ceiling, which included $2.2 trillion in spending cuts. The vote was 50-49, with 60 votes need to advance the bill.
But by the time of the vote, the result was anti-climactic; the real action is unfolding far from the Senate floor, as leaders of both parties try to hammer out the final details of a deal by day’s end to raise the debt ceiling from the current $14.29 trillion. That would be accompanied by deficit cuts of about $3 trillion.
Still, the Senate’s “cloture” vote was important, because it keeps alive the Reid bill as a legislative vehicle for the final deal. Given the cumbersome rules of the Senate, that could be critical as Washington scrambles to raise the debt limit by Tuesday, when the Treasury Department says the U.S. government will begin running out of money to pay all its bills.
In one quirk of the Senate rules, Mr. Reid voted against his own bill, which allows him to keep it alive.- 1:35 pm
- Reid Tells Senate to Take Five. Or Maybe Ten.
- by Joseph B. White
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- 1:43 pm
- Senate GOP Delays Meeting
- by Kristina Peterson
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Senate Republicans cancelled a planned 1:45 p.m. meeting to give negotiators more time to hash out a deal. "They called that off because they still have some work to do," said Sen. Orrin Hatch (R., Utah). The meeting may be replaced with a conference call later in the day, he said.- 3:05 pm
- Criticism of Potential Deal Begins
- by Rob Wells
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Some liberals are fuming about an emerging deal between Congress and the White House to solve the debt-ceiling crisis.
House and Senate leaders, along with the White House, are trying to finalize details Sunday to raise the debt ceiling along with deficit cuts of about $3 trillion. To get through 2012, Congress would form a special committee made up of an equal number of Democrats and Republicans to negotiate up to $2 trillion as part of a package containing a further debt-ceiling increase.
Stephanie Taylor, co-founder of The Progressive Change Campaign Committee, which “works to elect bold progressive candidates to federal office," issued a statement saying all Democrats in Congress should oppose this proposal. "Seeing a Democratic president take taxing the rich off the table and instead push a deal that will lead to Social Security, Medicare, and Medicaid benefit cuts is like entering a bizarre parallel universe -- one with horrific consequences for middle-class families,"’ Taylor’s statement said.- 3:14 pm
- Win-Win For Treasurys
- by Tania Chen
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Financial markets are on edge as lawmakers in Washington work toward an agreement on raising the limit on federal borrowing. But deal or no deal, the various outcomes may ultimately lead investors back into Treasurys.
U.S. government debt will benefit if Congress reaches a clean compromise ahead of the Treasury Department's Tuesday deadline. Any sort of austerity measures, such astax increases or spending cuts, would leave less support for a fragile economy, adding to interest in buying Treasurys.
But even if lawmakers can't reach an agreement, the U.S.'s triple-A credit rating is downgraded and the government defaults on its debt in technical terms, Treasurys should still end up well supported. Read the full article here.- 3:45 pm
- If It’s Tuesday, and There’s No Deal…?
- by Damian Paletta
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The Treasury Department has said for months that its authority to borrow new money could be extinguished if the debt ceiling isn't raised by Tuesday, and that the government will be essentially "running on fumes" after that.
With the wild political scramble to get a bipartisan package completed quickly, there's still a very real chance that final votes might spill into Wednesday, Aug. 3 -- and that's assuming both measures can pass the Senate and House.
Here's a quick Q & A on what that might mean:
Q: Wednesday? Uh oh. Does that mean we'll default.
A: No. The U.S. almost certainly won't default if things are delayed a day. That said, a one-day delay could pose headaches for the Treasury Department, and it is possible some payments might get delayed briefly. But default means missing an interest payment to bondholders. Those interest payments aren't due until Aug. 15. Still, the government will be in a fiscal pinch, and some other payments might have to be delayed or cut if the ceiling isn't lifted quickly.
Q: Will I still get my Social Security check?
A: A significant percentage of monthly disability checks go out Aug. 3. It's unclear what the impact on these checks might be, though the Obama administration is likely to do everything it can to avoid any disruption in these payments. Still, because these payments make up so much of each month's spending, the longer the stalemate lasts, the more the strain on the government’s cash flow.
Q: What about other government payments?
A: That could depend on whether a deal seems imminent or if it looks like the haggling will drag on for a while. Some estimate that government spending would have to be cut by more than 40 percent in August if the ceiling isn't raised, but Treasury might be able to hold out a day if an agreement is imminent.
Q: What about the Treasury auction scheduled next week?
A: Treasury could delay auctions or scale them back. If the lapse is just a day, the impact probably wouldn't be significant. If the lapse is longer, it could create uncertainty in Treasury markets, which could rattle investors.
Q: Will rating companies like Moody's and Standard & Poor's downgrade the U.S. if things are delayed a day.
A: There's no telling what they'll do. It probably won't be considered a "positive" development if the debt ceiling isn't raised by Aug. 2, but a one-day delay might not cause huge heartburn if it's clear a deal is within reach. That said, if the delay stretches for multiple days and there's no clear end in sight, that would be bad as far as the credit raters are concerned.
Q: What if they don't reach a deal by Wednesday and talks spill into the end of the week -- or beyond?
A: That probably wouldn't be good, although no one knows what the precise outcome would be. A lot could depend on what financial markets do, and they tend to frown upon uncertainty.- 4:24 pm
- Key Sticking Point In Debt Deal Likely Won't Involve Higher Tax Revenue – Lawmaker
- by Kristina Peterson
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Sen. Kent Conrad (D., N.D.) said Sunday he doesn’t expect higher tax revenues will be part of a process to automatically generate a reported $2 trillion in deficit reduction measures from an emerging budget deal.
"At this point, the enforcement mechanism doesn't have a revenue component," Sen. Conrad told reporters. "I've been working on several iterations that would have revenue in it, but that did not carry the day, shall we say."
House and Senate negotiators were close to a deal Sunday that would raise the country's $14.29 trillion debt ceiling and reduce the deficit by about $3 trillion over 10 years. The debt ceiling increase would likely take place in two steps, with the first increase lasting through the end of 2011. To get through 2012, Congress would form a special committee made up of an equal number of Democrats and Republicans to negotiate up to $2 trillion in additional cuts as part of a package containing a further debt-ceiling increase.
The two-stage deal would include a deficit-cutting mechanism that would kick in should the special committee fail to act. That enforcement mechanism, known as a trigger, would likely involve a new process for holding back federal spending. Democrats had pushed to include higher tax revenues as part of the automatic mechanism.
Sen. Conrad’s comments are significant since they suggest higher taxes would not be part of this automatic trigger process that kicks into gear should the committee fail to act.
Sen. Conrad said the bipartisan committee of lawmakers, however, would be allowed to consider every option in making its recommendations, including higher tax revenues. But a committee split with even ranks of Democrats and Republicans could have a hard time reaching an agreement to raise taxes, which Republicans have firmly opposed.
Details of how the automatic deficit reduction trigger would work are hazy. Senate Minority Leader Mitch McConnell (R., Ky.) declined to sketch out some of the details of the possible package, including what kinds of "triggers," or automatic spending cuts, if any, might be in place to force future spending cuts if a special committee can't agree on recommendations. Sen. McConnell said the issue of triggers has been a primary cause of the impasse between Republicans and Democrats over the last week.- 5:05 pm
- Hed Reid Says He “Hopes” Debt Deal Vote Happens Today
- by Joseph B. White
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Senate Majority Leader Harry Reid (D., Nev.) said he “hopes” to reach an agreement on a debt and deficit deal today, and get it to a Senate vote tonight.
Mr. Reid spoke shortly after the Washington Nationals, the capital’s up-and-down baseball franchise, snatched a 3-2 win from the New York Mets with a 9th inning, walk-off RBI single. Who says no one in Washington can get it done?
- 5:05 pm
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- 5:08 pm
- Sen. Sessions: Leaders "On Their Way" to a Deal
- by Damian Paletta
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Sen. Jeff Sessions (R., Ala.), the ranking Republican on the Senate Budget Committee, tells the Wall Street Journal that House and Senate leaders are closing in on a deal.
"I assume from what we've heard that our leaders have reached an agreement that would they think pass the Senate and pass the House,” Mr. Sessions said. “I don't know if they 'have' it, but they are on their way to it."
"If we are going to do this, then the sooner the better. Our economy is fragile," he said.
Mr. Sessions predicted the deal can pass the Senate “if it is halfway reasonable.” He declined to predict what will happen in the House.
The exact terms of the proposal haven’t been disclosed, and Mr. Sessions said there will be questions.
"I think we'll have to look at a lot of things, like can this committee work, what is being taken off the table [regarding cuts to entitlement programs] and what kind of enforcement mechanisms exist," he said.
On the sentiment in the Senate: "I think there's a bit of unease that nobody has participated much" except for the negotiators. He said the Senate budget process has been "decimated" by the process.
On whether this tentative deal might be enough to solve the country's future deficit problems: "I hope that nobody will think that this is sufficient, because it is not sufficient."
- 5:13 pm
- Reid Says He Has Signed Off on a Debt Deal
- by Carol E. Lee
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Sen. Harry Reid’s office says the Senate Majority Leader has signed off on a debt-ceiling deal, pending the approval of the Democratic Caucus.- 5:25 pm
- Investors Wary as New Week of Trading Begins
- by Andrew J. Johnson
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A week of rancorous debate and failed deals in Congress has left investors wary of risky positions as they enter a new week of trading, even though U.S. lawmakers presented a more optimistic outlook Sunday for a near-term deal that would avert a potentially calamitous U.S. debt default.
Lawmakers still face a Tuesday deadline set months ago by the Obama Administration at which point the federal government would hit its $14.29 trillion borrowing limit and, in theory, run out of cash. The hope Sunday was that a new deal containing total deficit reduction measures of up to $3 trillion will break the deadlock between Republicans and Democrats and see the limit raised. The two-stage deal would include spending cuts that would be triggered if Congress failed to act on the recommendations of a specially-appointed commission.
News of a deal looks likely to prompt a rebound in stocks, which dropped sharply last week to post their worst month since August 2010 and gold could fall from the record highs it hit on safe-haven-buying Friday. But market participants say the ugly politicking of the past two weeks, coupled with weak U.S. economic data on Friday and a downgrade of Spanish debt by Moody’s Investors Service, has left global investors biased toward risk-averse actions that will limit any sharp reversal from last week's shakeout.
“This is an atmosphere where you don’t do a lot with good news and you sell on bad news," said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago.
Currency markets opened in a jumpy mood in New Zealand trading, with the dollar getting a modest lift versus the perceived safe havens of the yen and the Swiss franc but otherwise on hold, awaiting news out of the Congress. The euro was recently at $1.4394, little changed from $1.4391 late Friday, after ticking up to $1.4405 shortly after the open, while the dollar was at Y77.21 against the yen after gaining to Y77.33 from Friday's close of Y76.78. The dollar's position below Y78 has stoked fear that the safe-haven Japanese currency could face intervention to weaken it by the Japanese Ministry of Finance. The dollar was at CHF 0.7912 against the Swiss franc, up from CHF0.7856 late Friday.
- 5:27 pm
- Democratic Leaders Will Get Briefed on Deal
- by Corey Boles
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Senate Democratic leaders plan to meet or brief lawmakers on a conference call to explain the debt ceiling deal just agreed to by Senate Majority Leader Harry Reid, an aide said.
The broad outlines of the deal are known: the debt ceiling would be raised in two tranches totaling $2.5 trillion. It would include $3 trillion in deficit reduction measures over the next decade.
Critical details, however, still aren’t known, starting with what mechanisms Congress will create to force itself to cut the deficit, and what will happen if lawmakers fail to reach their target.
- 5:35 pm
- Liberals and Conservatives Agree: There’s Plenty to Dislike in the Debt Fracas
- by WSJ Staff
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It’s often said that the sign of a good compromise is that almost no one is happy with it. Details of the debt ceiling deal worked out behind closed doors during the past several hours still aren’t out, and already liberal Democrats and conservative Republicans are grousing.
"We Democrats have already given 80%," said Sen. Barbara Mikulski (D., Md.), who said her party had already made a major concession last year in allowing the Bush-era tax cuts to be extended. "Now it's time for the other side to do that," she said.
Sen. Pat Toomey (R., Pa.), who has led calls for substantial spending cuts without raising taxes, on Friday called the deal-making process “discouraging.” The result, he predicted, “some kind of bipartisan deal that will raise the debt ceiling but not solve the underlying problem.” He said he will keep pressing for a balanced budget amendment to the Constitution.
Sen. Dianne Feinstein, (D., Calif.) says she’s not pleased with the way the debt ceiling deal went down. “But you know, as they say, sausage making isn't pretty," she said. "The sausage we have, I think, is a very different sausage than when we started."
Alabama Republican Sen. Jeff Sessions expressed dismay with the way Congress has handled the issue.
"We've ended up with a process where people people meet in secret to produce a product that all are supposed to vote for," he said today.
- 5:39 pm
- Details of the Deal
- by Carol E. Lee and Naftali Bendavid
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Here’s the outline of the debt ceiling deal as of now, according to officials on both sides:
* $900 billion in the first stage of deficit reduction.
* $1.5 trillion in second stage of deficit reduction to be defined by a bipartisan special committee of lawmakers appointed by leaders of the House and Senate.
* If the special committee fails to deliver a deficit-cutting package that would trigger $1.2 trillion in cuts, half would be Defense cuts and the other half would be non-Defense cuts, exempting low-income programs Social Security and Medicaid, and only impacting providers in Medicare.
* The debt ceiling increase would be done in three phases: $400 billion initially; another $500 billion later thise year would be subject to a vote of disapproval; a third increase of $1.5 to get the rest through 2012 and would also be subject to vote of disapproval.
* There is also a provision to have Congress vote on balanced budget amendment.
* The special committee would not necessarily tackle tax reform. But Mr. Obama is threatening to veto any extension of the Bush-era tax cuts for those making $250,000 a year or more unless Congress acts on an overhaul of the tax code.- 5:55 pm
- Next Up: Who’s on the Super Committee
- by Corey Boles
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A leader of a centrist group of House Democrats on Sunday said most of the group’s members are likely support an emerging deal to raise the country's $14.29 trillion debt ceiling and cut deficits by up to $2.4 trillion over the next decade.
First, the debt ceiling deal that’s just been tentatively agreed needs to pass the Senate and the House. Then, Republican and Democratic leaders will have to deal with the politically-charged question of who they appoint to the super committee of lawmakers who will decide what more spending to cut, or revenues to raise, to narrow the budget deficit by as much as $2 trillion over ten years.
Rep. Kurt Schrader (D., Oreg.), one of the co-chairs of the House Blue Dog coalition, the organization of fiscally conservative Democrats, says members of his 25-strong group want to know who will represent the House on the special body.
Under the emerging compromise, a committee of 12 lawmakers would be appointed to make recommendations on longer-term deficit reduction measures. Each party leader in both chambers would appoint three members to the panel. They would have to report back to Congress by Thanksgiving, or Nov. 24, 2011, and if a majority on the committee agreed, then both the House and Senate would vote on the findings.
Mr. Schrader said Blue Dogs are concerned that if the panel is comprised of only liberal Democrats and conservative Republicans, it could split along party lines rather than come to a bipartisan compromise.
It can’t be “the usual suspects,” Mr. Schrader said, but instead the special committee should be made up of lawmakers unafraid of tackling the fiscal problems facing the country.
Twenty House Democrats sent a letter to House Speaker John Boehner (R., Ohio) and Minority Leader Nancy Pelosi (D., Calif.) urging them to announce the appointees to the committee before the House votes on the wider compromise.
Some Republicans have also expressed concern about who gets nominated from their side of the aisle. As has been made clear during the past several days, some GOP lawmakers are more prepared to countenance increased tax revenues, or defense spending cuts, than others.
- 6:24 pm
- Boehner Balking at Debt Deal
- by Joseph B. White
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House Speaker John Boehner (R., Ohio) appears to be balking at the debt ceiling deal that Senate Democratic Majority Leader Harry Reid of Nevada has signed. Mr. Boehner is concerned about provisions in the deal that could lead to sharp cuts in military spending, say people familiar with the situation. House aides have warned that just because Mr. Reid has signed off on the deal doesn’t mean the deal is done.- 7:14 pm
- GOP Leaders Sign on To Tentative Debt Deal
- by Corey Boles
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Correction: A senior Republican aide said House GOP leaders have not signed off on the debt ceiling plan.
House Republican leaders have agreed to a “tentative deal” to lift the U.S. debt ceiling and cut the deficit by roughly $2.4 trillion in a series of stages. House leaders have scheduled a briefing for their caucus at 8:30, aides say. The move comes after a long afternoon during which House Speaker John Boehner (R., Ohio), balked at proposals that could lead to sharp cuts in military spending.
Earlier, Senate Majority Leader Harry Reid (D., Nev.) "signed off" on a debt-ceiling plan pending the approval of the Senate Democratic caucus, a congressional aide said Sunday.
Now, the leaders have to round up their troops and schedule votes.- 7:21 pm
- Tough Day for Asian Traders
- by Joseph B. White
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Looks like a tough day for Asian traders. The U.S. dollar was up in early Asian market action on optimism that congressional leaders and the White House had struck a deal to avert a U.S. debt default. Then the dollar dipped on reports that House Speaker John Boehner was balking at elements of the proposal that could, under certain circumstances, lead to substantial cuts at the Pentagon. Now, House aides say Mr. Boehner has signed on to the agreement, pending the approval of the GOP caucus. Meanwhile, S&P futures are up 1%.- 7:26 pm
- Traders Look Past the Drama
- by Enda Curran
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Traders in Sydney, already at work on their Monday morning, are in “believe it when I see it mode,” when it comes to the debt and deficit drama unfolding in Washington.
No formal deal to avert a U.S. default is done, though Democratic and Republican leaders appear to be headed toward a resolution during Washington’s Sunday evening. Meanwhile, some currency dealers and strategists in Sydney said if a final deal on the ceiling is reached, any dollar rally will be short lived given the risk of a credit downgrade and a dire underlying economy.
"It's still very possible that the U.S. could still lose its AAA sovereign rating," said Richard Grace, chief currency strategist at Commonwealth Bank of Australia.- 7:59 pm
- GOP Prepare to Speak to Rank and File, Defense Spending An Issue
- by Corey Boles and Naftali Bendavid
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House Speaker John Boehner (R., Ohio) and other top leaders will brief GOP lawmakers on the state of the negotiations with Democrats at 8:30 p.m. EDT Sunday, a senior Republican aide said.
An aide to Rep. Boehner said this scheduling of this call doesn’t mean there’s a debt ceiling deal with Democrats. He cited Rep. Boehner’s concerns about defense spending levels in the fiscal year 2012; Boehner has balked at proposals that could lead to sharp cuts in military spending.
Earlier, Senate Majority Leader Harry Reid (D., Nev.) "signed off" on a debt-ceiling plan pending the approval of the Senate Democratic caucus, a congressional aide said Sunday.
The broad outlines of the deal include roughly $2.4 trillion in spending cuts and increase the borrowing limit by a similar amount--enough to support federal borrowing through 2012.
This corrects a previous post that said House Republican leaders had signed on to a tentative debt deal.- 8:19 pm
- Video: Debt Ceiling Plan Taking Shape but Still No Deal
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A plan to raise the nation's debt ceiling is taking shape in Washington but lawmakers are still wrangling over key issues. Kelsey Hubbard gets the latest developments from The Wall Street Journal's Jerry Seib in Washington.- 8:19 pm
- Japan Opens Higher
- by Jake Lee
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Japan’s Nikkei, the first major Asian stock exchange to open since the weekend, has climbed 0.8% to 9907.04.- 8:32 pm
- AP Source: Boehner, Democrats Strike Debt Deal to Head Off Government Default
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A Democratic official tells The Associated Press that the White House and Republicans in Congress have reached a debt deal to prevent the first government default in U.S. history.
The official said House Speaker John Boehner and President Barack Obama spoke by phone Sunday evening. The official spoke on condition of anonymity because the deal has not yet been announced. Obama was to go on TV at 8:40 p.m. EDT.- 8:34 pm
- Obama To Deliver Statement at 8:40 PM
- by Rob Wells
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President Barack Obama is scheduled to deliver a statement at 8:40 p.m. EDT as Congress works to finalize details on a $2.4 trillion debt ceiling agreement.
Mr. Obama is set to deliver a statement from the White House press briefing room.
The emerging plan would raise the debt ceiling by $2.4 trillion in three stages and provide initially for roughly $900 billion in spending cuts over 10 years. A special committee of lawmakers would be charged with finding another $1.5 trillion in deficit reduction through a tax overhaul and changes to safety-net programs.
The debt ceiling increase would be done in three phases: $400 billion initially; another $500 billion later this year would be subject to a congressional vote of disapproval; a third increase of $1.5 trillion which would provide the government with enough cash to cover all its bills through 2012, also be subject to vote of disapproval.- 8:37 pm
- White House: No Debt Deal Yet With Republicans - AP
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A top White House official says "we don't have a deal" between President Barack Obama and Republicans in Congress to avoid a crippling default, according to the Associated Press.
But senior White House adviser David Plouffe tells NBC's "Meet the Press" that both sides are generally in agreement on an emerging package that would cut the deficit in two stages, with key details still being worked out.- 8:42 pm
- Obama Says Congressional Leaders Have Agreed to a Debt Deal
- by WSJ Staff
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President Barack Obama, speaking from the White House, said the leaders of both parties in both chambers of Congress have agreed to a deal to raise the federal debt ceiling and cut government spending.- 8:44 pm
- Markets Jump on Debt Agreement
- by Jake Lee
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Japan's Nikkei has jumped to a 1.6% gain, and the euro has risen against the dollar and the yen as Obama says leaders of both parties have reached an agreement on the debt ceiling.- 8:56 pm
- Congressional Leaders Say They Have Reached 'Historic Agreement'
- by Corey Boles
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Democratic and Republican Senate leaders announced Sunday night they had reached an "historic agreement" to ensure the debt ceiling is raised before an Aug. 2 deadline and trillions of dollars are reduced from federal budget deficits.
Senate Majority Leader Harry Reid (D., Nev.) and Minority Leader Mitch McConnell (R., Ky.) spoke on the Senate floor, saying they had reached the framework of an agreement and would brief their respective lawmakers on Monday morning.
“There is a now a framework to review that will ensure significant cuts in Washington spending,” Mr. McConnell said.
A senior Senate Democratic aide said that a vote hadn't yet been scheduled but it is likely to occur on Monday.- 8:58 pm
- Obama: A Deal, But Not Done
- by Joseph B. White
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President Barack Obama, speaking from the White House as major Asian markets were opening, said congressional leaders agreed Sunday to a deal to cut the deficit and raise the federal debt ceiling, but he cautioned the struggle over U.S. fiscal policy isn’t over, either short term or long term.
In the short term, Mr. Obama and congressional leaders need to deliver votes to pass the proposal worked out in closed-door talks among White House officials and congressional leaders. A big uncertainty: Will enough House Republicans agree to vote for the package?
Long term, Mr. Obama made it clear in his remarks he’s not done fighting for his vision of how the U.S. should narrow its budget gap, which is a combination of raising taxes and cutting spending, including making what he described as modest changes to the big old-age entitlement programs. Republicans rejected tax increases throughout weeks of wrangling leading up to today. Democrats are equally adamant that Medicare and Social Security not be curtailed.
A special committee appointed by congressional leaders will weigh how best to trim $1.2 trillion in spending in a second phase of the process to cut a total of about $2.4 trillion overall.
“Everything will be on the table,” Mr. Obama said.
“I will continue to make the case..that a balanced approach is necessary to do the job,” Mr. Obama said.
“We are not done yet,” Mr. Obama said. “I urge members to do the right thing and support this deal with your vote.”- 9:10 pm
- Dollar Spikes, But How Will Rating Agencies Respond?
- by James Glynn
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The U.S. dollar is enjoying a spike against safe havens like the Swiss franc and Japanese yen now that Washington lawmakers have moved closer to a deal on raising the debt ceiling and making US$1 trillion in spending cuts, says Greg Gibbs, head of currency strategy at RBS.
He notes the key now is the ratings agency response as the spending cuts proposed are smaller than hoped. He adds talk that more cuts may be made over the coming months could be enough to placate the ratings agencies on the topic of the U.S.'s AAA rating. But "there is a lot of work for them to do before they convince the market that they have the wherewithal to get their fiscal house in order," Mr. Gibbs says.
The dollar against the yen is now at 77.92, up from 77.12 earlier in Asia trading.- 9:12 pm
- Boehner’s Sales Pitch on Debt Plan
- by WSJ Staff
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Here’s what House Speaker John Boehner sent to his fellow Republicans to make the case for the debt ceiling plan. Main points: it holds President Barack Obama “accountable,” doesn’t include tax hikes and offers up a vote on a balanced budget amendment. Mr. Boehner told Republican lawmakers the House will move forward with the debt ceiling extension and the $2.4 trillion in deficit reduction as soon as possible.- 9:15 pm
- Another Manic Monday
- by Joseph B. White
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Washington is in for another Manic Monday of action on Capitol Hill.
The framework of the $2.4 trillion debt and deficit deal is done and agreed by the leaders of both chambers of Congress and President Barack Obama. Now the rank and file members of the House and Senate must vote on legislation to put the agreement into effect, having had little or nothing to do with its final assembly. That could be a bumpy process, especially in the Republican-led House. But even in the Democratic-controlled Senate, Majority Leader Harry Reid (D., Nev.) could need Republican votes to overcome any attempt by opponents of the agreement to block action with a filibuster. Mr. Reid not long ago adjourned the Senate for the night.
Overseas stock, debt and currency markets perked up Sunday night – their Monday -- on news of the agreement among the leaders. U.S. investors will get to watch what they hope will be the final act of the drama unfold all during their trading day.- 9:37 pm
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The full transcript of Obama’s speech on the debt deal can be read here.- 9:39 pm
- Rating Agencies Decline to Comment
- by Jake Lee
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Moody's and Standard & Poor's have both declined to comment on the U.S. debt ceiling deal.- 9:47 pm
- Gold Correcting Lower, May Gain Later
- by Arpan Mukherjee
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Gold is currently in a corrective mode following Obama's statement that leaders of both parties have reached an agreement to lift the debt ceiling and reduce the federal deficit, says a Hong Kong-based trader.
"Investors are absorbing the news still, so (gold) prices fell initially," the trader said, adding that the yellow metal, considered a safer bet during times of economic uncertainty, is likely to move higher after the drop. "We have seen some physical buying this morning."
He says besides the U.S. debt ceiling problems, European sovereign debt issues and slow global growth will propel gold prices higher. Spot gold hit a fresh record high of $1,632.74 a troy ounce Friday on continuing uncertainty as talks to raise the U.S. debt ceiling dragged on. Spot gold is last at $1,611.30 an ounce, down $15.90, silver is at $39.42 an ounce, down 48 cents, while platinum is at $1,792 an ounce, up $17 and palladium is at $833 an ounce, up $7 from its previous close.- 9:55 pm
- Asia Shares Rally
- by Leslie Shaffer
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Asian shares rallied Monday as U.S. President Barack Obama confirmed a deal to raise the debt ceiling was in place, easing concerns of a possible credit downgrade or default, while the U.S. dollar pushed higher against the Japanese yen.
"It seems the risk of U.S. default and possibly the risk of downgrades is starting to come off the table," said IG Markets chief market strategist Ben Potter.
Obama said leaders of both political parties reached a broad deal Sunday night to raise the government's debt ceiling while cutting spending. Earlier Sunday, congressional aides said the agreement would raise the debt ceiling by $2.4 trillion in three stages and provide initially for roughly $900 billion in spending cuts over 10 years.
Japan's Nikkei Stock Average jumped 1.8%, Australia's S&P/ASX 200 climbed 1.9%, South Korea's Kospi Composite added 1.7% and New Zealand's NZX-50 was 0.4% higher. Dow Jones Industrial Average futures were quoted 182 points higher in screen trade.
In foreign exchange markets, the U.S. dollar briefly hit a session high in Asia just over ¥78.00 against the yen, from ¥76.78 late Friday in New York, pushing the euro higher in turn against the yen. The euro was recently at ¥112.05, from ¥110.05 Friday, but fairly muted at $1.4380 against the dollar, from $1.4391.- 10:03 pm
- Korea: Treasurys To Remain Favored Asset
- by In-Soo Nam and Se Young Lee
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The deal struck to raise the U.S. debt ceiling will help reduce market uncertainties and attract global investors into the safe haven of U.S. Treasurys, South Korean officials said Monday.
"When it comes to safe haven assets, there's no alternative to U.S. Treasurys," said Huh Jin-ho, chief of the Bank of Korea's global economy research division.
Senate leaders announced late Sunday in the U.S. that they have reached an agreement to raise the country's debt ceiling and avoid a potential default by the government on its debt obligations.
The BOK official said the U.S. debt breakthrough will also help buttress the greenback as concerns about a possible U.S. sovereign debt downgrade dissipate.
An official at South Korea's Ministry of Strategy and Finance said the bargain struck between the U.S. Democrats and Republicans is a "net positive."
The official, who declined to be named, noted the South Korean won appears to be rising as a result of the deal, but said he doesn't anticipate any serious negative impact on the local market, such as potentially destabilizing rapid foreign capital inflows.
The dollar was recently near a three-year low at 1,049 won, compared with 1,054.5 won late Friday trade in Seoul.
South Korea held 31.2 billion won worth of U.S. Treasurys at the end of February, according to U.S. Treasury Department data.- 10:22 pm
- Fact Sheet From White House
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The House and Senate were expected to meet Monday to discuss the details of the plan. Click here for a fact sheet on the deal issued by the White House late Sunday evening.- 10:28 pm
- New York: Questions For Ratings Agencies
- by Michael Casey
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With a deal all but done in the U.S. Congress to increase the Federal Government’s debt ceiling by $2.4 trillion over the next year-and-a-half, and to cut the deficit by the same amount over 10 years, attention now turns to three main ratings agencies. Even as it avoids a default, the U.S. could still lose its coveted “AAA” rating if the agencies--Standard & Poor’s, Moody’s and Fitch--decide that the plan doesn’t go far enough to alleviate the long-term fiscal challenges that the government faces.
Given the politics involved, the agencies may well withhold judgment on their ratings until after Thanksgiving, for example, to view the recommendations of a special bipartisan committee that the will be set up under the new agreement. But until now, all three have been quite outspoken about the process and have not been shy of sharing their opinions on how the U.S. government is handling this debt problem.
Both Moody’s and S&P have so far declined to comment, presumably because they need to see the framework formally approved and the more of the details. But when it happens, there are some key questions that they will need to answer. Here’s some of them:
- Is $2.4 trillion enough of a deficit reduction? (It’s well short of the $4 trillion that was the starting point for the discussion and which was thought to be the amount that S&P, which has been the most aggressive of the three, was looking for to assure the survival of the AAA rating.)
- Does the three-step, highly politicized process through which the debt ceiling will be increased out through 2012 under this deal insert uncertainty into the deficit reduction process?
- What is the impact of that uncertainty on markets, on the economy, on the U.S. credit rating?
- Do the spending cut triggers--which will kick in if the fiscal commission’s recommendations aren’t adopted--sufficiently alleviate some of that uncertainty?
- Are the ratings agencies happy with the quality/timing of the fiscal measures? Are they designed in such a way that the short-term damage from withdrawing government stimulus from a fragile economy is curtailed while also maximizing improvements to long-term fiscal sustainability through reductions in unfunded Medicare and Social Security liabilities?
- How much does the entire ugly, drawn-out process by which we’ve come to an 11th-hour deal now weigh on the U.S. rating? Since developing countries have long had their ratings undermined by what the agencies describe as weak political institutions, does the same now apply to the U.S.?
- 10:44 pm
- Tokyo: Japan Finance Minister Noda: Hope Mkts Will Reflect US Debt Deal
- by Takashi Nakamichi
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Japan's finance minister said Monday that diminishing concerns about U.S. debt problems are a positive development for Japan's economy, and he hopes financial markets will reflect the situation.
"Of course it is a good thing that concerns (over the U.S. debt issue) are fading," Finance Minister Yoshihiko Noda told reporters at parliament when asked about the impact of a U.S. debt deal on Japan's economy.
"I hope that will be firmly reflected in the market," he added. On the question of Japan's currency policy, he said, "Our basic stance is to continue to closely watch" the currency market.
- 10:50 pm
- Washington: BlackRock Calls Debt Deal ‘Positive,’ Refrains From Full Endorsement
- by Siobhan Hughes
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Money-manager BlackRock Inc. called a debt deal outlined Sunday by congressional leaders “positive,” but withheld a full-throated endorsement because of questions about the timing and scope of deficit-reduction measures.
“We believe the framework proposed to reduce federal spending is a positive development,” the company said in a statement. “However, the precise composition and timing of any spending cuts will determine whether this proposal produces a real and significant reduction in the deficit. Avoiding default by the U.S. government is of paramount importance, but investors also need to see a clear path toward deficit reduction that encourages confidence in the U.S. dollar.”
Details of the deal have yet to emerge and rank-and-file lawmakers must still approve the package. If Congress fails to approve the deal by Tuesday, the U.S. will be unable to pay all its bills because it doesn’t have enough revenue to meet obligations. The country’s borrowing capacity runs out on Aug. 2.
“America cannot afford further delay,” BlackRock said, adding that it is “hopeful that America’s elected representatives will proceed with urgency to resolve the debt ceiling and reduce our deficits.”- 10:56 pm
- Pimco's El-Erian Comments on Debt Deal
- by Stephen L. Bernard
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Though Moody’s Investors Service and Standard & Poor’s Ratings Services said late Sunday they would not immediately comment on the tentative debt deal reached by President Barack Obama and Congress, past comments from the ratings agencies indicate the U.S. government’s perfect credit rating could still be in jeopardy.
S&P had repeatedly said since putting the U.S. rating on review for possible downgrade that it wanted to see a deficit-reduction plan that was around at least $4 trillion. The tentative deal reached earlier Sunday appears to fall well short of that level. The agreement calls for a $2.4 trillion reduction to deficits over the next 10 years.
If S&P determines the deal falls short of meaningfully changing the trajectory of U.S. deficits, it could still cut the government’s triple-A rating. S&P had previously said a downgrade would likely be into the AA range, which means the U.S. could still see its rating cut between one and three notches. A cut in the rating could lead to higher borrowing costs for the U.S.
“The impact on the AAA will depend on whether S&P sticks to what it stated back on July 14 when it placed America’s rating on negative watch,” said Mohamed El-Erian chief executive officer and co-chief investment officer at Pacific Investment Management Company. Pimco, a unit of Allianz, is one of the world’s largest bond market investors.
El-Erian said in an emailed response to questions from Dow Jones Newswires that “a strict interpretation by S&P speaks to the likelihood of a downgrade, though I suspect, the agency is under enormous pressure not to do so.”
Moody’s, meanwhile, said as recently as Friday that as long as the debt ceiling was raised before the government missed payments, it would likely affirm the country’s rating. The tentative deal between the president and Congress includes an agreement to raise the debt ceiling by $2.4 trillion, which would allow the government to borrow through the end of 2012.
The government was facing an Aug. 2 deadline to raise the country’s legal borrowing limit or face possible default on outstanding debt.
However, Moody’s also previously noted it might place a negative outlook on the country, even if it affirms the Aaa rating. The outlook, which is a long-term view on a country’s debt rating, would be based on the long-term trajectory of the country’s debt, Moody’s had said.
Moody’s and S&P both placed the government’s rating on review for possible downgrade in July. Fitch Ratings, the other major ratings agency, didn’t place the government’s rating under review amid the debt debate.- 11:05 pm
- Washington: Structure Of Debt Ceiling Deal's Committee Could Hinder Raising Taxes
- by Kristina Peterson
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The structure of the joint committee created under the proposed debt-ceiling deal reached Sunday and the yardstick by which its savings will likely be measured are both expected to make it harder for the group to raise tax revenues.
A special committee of lawmakers would be charged with finding at least $1.5 trillion in deficit reduction through a tax overhaul and changes to safety-net programs.
Details of who is on this committee and the restrictions they face will be key for any tax policy recommendations. The White House said Sunday evening the committee's domain would include "both entitlement reform and revenue-raising tax reform."
But there is a formidable barrier to raising taxes: the proposed structure of the committee, which will have six Republican and six Democratic lawmakers, and would need seven votes to advance a recommendation. That would require one Republican agreeing to raise taxes, unlikely in this political climate.
There's one detail in the fine print that has important implications for tax policy: selecting the yardstick to measure the committee's savings. According to a presentation that House Speaker John Boehner (R., Ohio) sent to lawmakers Sunday night, the yardstick--known as a budget baseline--would be current law. This means the savings would reflect the expiration of the Bush-era tax cuts, among other tax breaks slated to end. Because of this, the joint committee's deficit reductions will be measured against a yardstick that already assumes some key taxes have already gone up.
Using the current law baseline is "effectively making it impossible for [the] Joint Committee to raise taxes," Boehner's presentation claimed. This arrangement, while not making it impossible to raise taxes, certainly makes it harder, according to a senior Senate aide and other analysts.
Under the proposal, the relevant committees would be able to make recommendations to the joint committee by Oct. 14, according to the aide.
The joint committee would need to produce a bill by late November, which would be evaluated by Congress' official budget score keepers, the Congressional Budget Office and the Joint Committee on Taxation.
The bill's tax provisions would then be sent to the Senate Finance and Ways and Means Committees, who couldn't amend it, but could vote whether to advance the report.
If Congress doesn't approve the committee's recommendations, then enforcement mechanisms would kick in to cut spending.- 11:35 pm
- Sydney: Swan Says Fiscal Consolidation Needed
- by James Glynn
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Australian Treasurer Wayne Swan on Monday joined the chorus of world leaders urging the U.S. to move toward long-term consolidation of its budget deficit, saying a deal struck Sunday in the U.S. to end the debt ceiling impasse is just the first step toward ending the country’s debt woes.
“This is such an important step, but they’ve got to go to the next step. We’ve got to see a pathway from fiscal consolidation in the U.S. We need that for global certainty,” Swan told SkyNews television.
Mr. Swan added the Reserve Bank of Australia will need to consider the global environment and recent local inflation data when its board sits down Tuesday to discuss a possible rise in interest rates.
High second-quarter inflation readings have presented the RBA with a compelling case to raise rates for the first time since November, according to economists.
But others argue international instability and signs of a slowdown locally still give the central bank time to sit pat. Swan said inflation has accelerated for one-off reasons.- 11:40 pm
- Republican Presidential Candidates Slow to React
- by Danny Yadron
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Most Republican presidential candidates declined to react Sunday night to a debt-ceiling deal struck between the White House and congressional leaders.
By the end of the evening, only two major candidates had staked out positions -- Rep. Michele Bachmann (R., Minn), a tea party favorite, opposed it, and former Utah Gov. Jon Huntsman backed it.
Neither are a surprise. Ms. Bachmann has said repeatedly she will vote against any legislation that raises the debt ceiling. Mr. Huntsman, meanwhile, backed the original proposal by Speaker John Boehner that was shot down by House conservatives.
But it will be interesting Monday to see how former Massachusetts Gov. Mitt Romney and former Minnesota Gov. Tim Pawlenty react, both of whom remained silent Sunday night. Mr. Romney's campaign has tried to avoid weighing on the day-to-day movement in negotiations but has drawn flack for not always taking firm positions. Mr. Pawlenty said last week he opposed the original Boehner plan.
If they support the deal, which is backed by a Democratic president, they open themselves to attacks from the right. If they oppose it, independent voters could view them as unwilling to compromise, something public opinion polls show most of the electorate favors.
"While this framework is not my preferred outcome, it is a positive step toward cutting our nation's crippling debt," Mr. Huntsman said in a statement. "I encourage members of Congress to vote for this legislation."
He added later: "A debt crisis like this is a time for leadership, not a time for waiting to see which way the political winds blow."
Ms. Bachmann was less laudatory.
"The 'deal' [President Barack Obama] announced spends too much and doesn't cut enough," she said in a statement. "This isn't the deal the American people 'preferred' either, Mr. President. Someone has to say no. I will."
Monday, August 1, 2011
Live Blog: The U.S. Debt Battle july 31, 2011
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