A mere eight days before the U.S. government must either raise the debt ceiling or risk an unprecedented default, reports this morning are painting a bleak picture of the prospects for lawmakers striking a bipartisan deal. Under the headline, "Hopes for Debt Deal Disintegrate," Politico explains how House Speaker John Boehner and Senate Majority Leader Harry Reid are moving in opposite directions, with Boehner pursuing a $3 trillion deficit reduction plan that would raise the debt ceiling by $900 billion in August and $1.6 trillion next year despite a veto threat from President Obama, and Reid championing a $2.7 trillion plan that would raise the debt limit by $2.4 trillion through the 2012 elections.
If there's any good news today, it's that the debt standoff hasn't yet sent global markets into panic mode, as some feared. Reuters notes that while stock index futures fell sharply and gold--considered a safe investment--soared to a record high on Monday over fears of a U.S. credit rating downgrade, "analysts still expect a deal to raise the U.S. debt ceiling by August 2." Still, as investment adviser James Rickards tells Politico's Playbook, all is not well in the markets:
The whole world is engaged in a kind of silent run on the bank. Stock investors are going to cash. Leveraged investors are reducing their balance sheets. Inter-bank lenders are pulling back lines and shortening maturities. Smart money is going to gold, which is a 'dead' asset once you're there--i.e., not easy to re-lend in liquid markets. Think of it as the calm before the storm.
The White House, which stayed on the sidelines over the weekend, has since joined the fight, penning a blog post today that points out how Republicans once criticized the very type of "short-term extension" the Speaker is now proposing, since it could endanger America's credit rating and increase the cost of borrowing. While the White House, which initially proposed a "grand bargain" involving trillions of dollars in budget and entitlement cuts, is firmly opposed to Boehner's "two-step deal," The New York Times notes, "administration officials expect that the Senate would modify Mr. Boehner's proposal." In the meantime, all sides are "staring at a crisis with no clear path forward," as Bloomberg puts it.