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Politico...
Debt
ceiling debate draws pols’ eyes
to markets
By Manu Raju
7/26/11
A
growing number of lawmakers fear
only one thing can bring the fight over raising the national debt limit
to an
end: market turmoil.
Republicans
and Democrats on Capitol Hill
are nervously watching financial markets and ratings agencies for fresh
signals
that they must overcome a bitter impasse that has left both parties
digging in
and has put the health of the economy on the line.
It’s
another sign of how far
Washington has moved from hopes of reaching a sweeping compromise aimed
at
reversing record-high budget deficits to now scrambling to avert a
crisis of
its own making.
“If
at some point, market forces
decide that a deal is not there, then you’ll see a huge reaction,” said
Sen.
Mike Johanns (R-Neb.). “How huge? I don’t know.”
“The
reality of the marketplace is
going to create a lot of second thoughts,” said Sen. Frank Lautenberg
(D-N.J.).
“External
forces could be part of
this,” Senate Majority Whip Dick Durbin said Tuesday. “I hope we don’t
reach
that point.”
“I
think there’s pressure there, and
everybody’s paying attention to it,” said South Dakota Sen. John Thune,
No. 4
in GOP leadership. “There are clearly consequences and indications if
we don’t
act.”
The
economic and political
implications of the fight are hard to overstate. If Washington doesn’t
raise
the debt ceiling by Aug. 2, the country could default on some of the
millions
of bills it owes domestically and abroad, creating a crisis of
confidence and
sending the world’s economy into a tailspin.
Facing
a $14.3 trillion debt and
fiscal mess at home, Republicans have demanded that any increase in the
national borrowing limit be met by an equal amount of spending cuts.
But
efforts to cut a bipartisan deal on a sweeping deficit-reduction
package have
stalled over demands by Republicans that no tax increases be attached
to the
plan, and Democrats’ refusal to allow deep cuts to entitlements like
Medicare
without revenue raisers.
Since
last Friday, when talks broke
down between House Speaker John Boehner and President Barack Obama, and
since
congressional talks yielded no fruit over the weekend, the Dow Jones
Industrial
Average has dropped, including by 91 points Tuesday. Analysts say the
financial
markets still anticipate Congress will reach a deal by next week; if
not, it’s
anybody’s guess how they’ll react.
“With
some estimates that the
government’s cash flows are better than expected, I don’t expect much
market
reaction until next week at the earliest,” said Brian Gardner,
Washington
analyst with the financial services firm Keefe, Bruyette &
Woods. “These
are unchartered waters, and no one really knows.”
Read
it at Politico
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