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.
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.
In a place like Washington, DC, where deals are often struck at the eleventh hour, eight days may seem like a decent amount of time to work out the fundamental differences dividing the parties. But, as Bloomberg points out, that deadline is considerably shorter if one considers procedural hurdles. "Boehner has told Republicans privately that the House would probably need to act on a debt-ceiling measure by July 27 to allow time to pass it, send it to the Senate, where procedural tactics could stall it for days, and get it cleared for Obama's signature in time to meet the Aug. 2 deadline," Bloomberg explains. "That would mean introducing a bill today to comply with House rules that require legislation to be publicly available for three days before it comes up for a vote." On Sunday, Treasury Secretary Timothy Geithner also argued that, by Monday, lawmakers must " have a framework that they know with complete confidence will pass both houses of Congress, that is acceptable to the president."