Forex Go!

On a day when Greece approved its austerity cuts, the United States may have taken a step backwards in approving the needed extension of the debt ceiling.  President Obama held his first press conference since March on Wednesday.

After meeting with Democrats in the morning, the President was scheduled to meet with Republicans in the afternoon.  However, in the wake of warnings from the International Monetary Fund (IMF) and the Treasury Department, there was a hint of anger and a hint of frustration at the President’s news conference.  The President called for a resolution to the debt ceiling issue and instructed Congress that if a deal was not made by the end of the week, he would call Congress to session over the 4^th of July holiday.

Obama painted several images of the Republican cause.  He compared the Republican opposition to tax breaks for high-income individuals while the country is facing a debt crisis.  He also drew the comparison of billionaires with tax breaks while assistance for college tuition are scheduled to be cut. 

Unlike the extension of the Bush Tax Cuts, Obama took a strong stance against the politics of the debt and budget negotiations.  Obama also pushed for economic stimulus to upgrade the country’s infrastructure and add jobs. 

Treasury Secretary Timothy Geithner weighed in saying that there was no way to stave off default unless Congress agreed to increase the debt ceiling.  “There is no credible budget plan under which a debt limit increase can be avoided.”  Republicans are pushing for Treasury to prioritize payments to cover the debt, thus putting millions of social security recipients at risk.

Bipartisan talks led by Vice President Joe Biden broke up last week when Democrats put tax increases for the wealthy on the table.  Republicans Cantor and Kyl walked out of the meetings that had laid groundwork for $1 and $2 trillion in tax cuts. 

The IMF sent word that a failure to reach a deal in the next two weeks would create “severe shock” in all global markets.  The Bipartisan Policy Center was quick to support the IMF’s position and rebuke the Republican stance that Treasury could prioritize payments closing down payments for Medicare, social security, disability and Medicaid in order to honor the national debt. 

“Are we really going to start paying interest to the Chinese who hold Treasuries and not pay folks their Social Security checks or not pay veterans their disability checks?”

Standard Poor’s Weighs In

Financial markets continue to ignore the debt ceiling crisis and on Wall Street it is business as usual.  Equity markets enjoyed their third straight day of gains. 

All this as Standard and Poor’s said inaction about the debt ceiling would be classified as “selective default” if the country misses an August 4 interest payment.  The situation is already awkward and causing concern around the globe.

John Chambers, the managing director of Standard and Poor’s said the U.S. Treasury bills maturing on August 4^th would be classified as “D” if payments were not made.  Other bonds maturing later would also be significantly downgraded.

Last-minute debt ceiling talks have worked in the past.  Since 1960, last minute haggling has resulted in the necessary increase at the eleventh hour. Chambers said that default would cause all markets around the globe to collapse.

The other two credit rating agencies have already warned about the downgrade.  They have also expressed concern about the delay in approving the new ceiling.  There is another debt payment scheduled for August 15^th. 

President Obama has threatened Congress that he would call them back in full session if legislation is not approved by the end of this week. 

About Federal Default

Reuter’s columnist Reynolds Holding reports that federal default is not an option according to the U.S. Constitution.  This document, which is highly valued by Tea Party members, prohibits the government from defaulting on its national indebtedness.

This adds clout to the stance of the White House.  According to the Constitution, public debt “shall not be questioned.”  This may give the President the leverage he needs to make certain the country meets its obligations.  According to Holding, the President can declare the default unconstitutional and make provisions to pay the debt.

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