First came the Biden talks. When those blew up, the Obama-Boehner talks took center stage. And when that failed, the McConnell-Reid talks looked promising. And after they faltered, the Obama-Boehner talks tried to find a new life.
Now it’s all come down to the Boehner-Reid-Pelosi-McConnell talks to solve the debt crisis. Notably absent? The president.
In a frantic bid to avoid causing a worldwide economic disruption, debt negotiations have shifted wholly to Capitol Hill, as a frustrated President Barack Obama has taken a step back and allowed House and Senate leaders to try to find a way out of the debt-ceiling debacle. After congressional leaders told Obama at the White House Saturday morning they would attempt to stave off the crisis before Asian markets open Sunday evening, leadership aides raced to put together a framework that both parties could support.
With the debt-limit deadline approaching, Obama said at the White House July 22 that “at minimum” Congress must act to avoid a default that would roil financial markets and damage the economy. He said he was consulting with Treasury Department officials about the potential consequences of a default.
“It’s very important that the leadership understands that Wall Street will be opening on Monday, and we’d better have some answers during the course of the next several days,” Obama said.
The weekly performance of Treasuries was down last week for the first time in three weeks, though they rose July 22 amid bets that Obama and lawmakers would reach a deal to reduce the deficit, raise the debt ceiling and avert default. Trading closed before Boehner announced his withdrawal from talks on a broader deal.
Yields on two-year Treasury notes touched the highest in almost two weeks on July 21 as Standard & Poor’s reiterated it saw a 50 percent chance of cutting the U.S. credit rating within three months. Yields on benchmark 10-year notes rose six basis points, or 0.06 percentage point, to 2.96 percent July 22 in New York, from 2.91 percent on July 15, according to Bloomberg Bond Trader prices.
Still, markets through last week hadn’t demonstrated great concern about the potential for a default. Yields on 10-year- notes remained well below the average of 4.06 percent during the past decade.
The president didn’t hide his frustration with the turn of events on Friday, saying Boehner didn’t return his phone calls during the day and observing it wasn’t the first time during the debt-limit talks he had been “left at the altar.” He declared that Republicans had walked away from “an extraordinarily fair deal.”
“Can they say yes to anything?” Obama said to reporters. “It’s the Republican Party that has said that the single most important thing facing our country is deficits and debts. We’ve now put forward a package that would significantly cut deficits and debt.”
Boehner disputed Obama’s version of the impasse at a news conference shortly after the president’s, saying he exited the talks because the White House “moved the goal posts” on the tax revenue that would be included in a deal. He said the Obama administration wanted “more money at the last minute.”
Obama said in the bid for a deficit-reduction agreement that Republicans have made a prerequisite for raising the debt limit, he was willing to cut $1 trillion from discretionary spending and another $650 billion in entitlement programs, such as Medicare. The president said tax increases of $1.2 trillion he sought were less than what a bipartisan group of senators had proposed.
The aides said a breaking point came after a bipartisan group of senators known as the Gang of Six unveiled its plan on July 19 to slash $3.7 trillion from the debt through spending cuts and a tax overhaul that would produce $1 trillion more in revenue.
The Republican aides said the revenue increase in the plan was larger than one Boehner and Obama had tentatively agreed to. An administration official said the plan changed the political dynamics in the push for a deal.
Standard & Poor’s warned there is a 50 percent chance it will lower the U.S. government’s AAA credit rating by one or more levels within three months. S&P said that, even if Congress raises the debt limit in time to avert a default, it might lower the U.S. sovereign rating to AA+ with a negative outlook if it isn’t accompanied by a “credible solution” on the debt level.
Such a ratings change would “modestly raise” the government’s borrowing costs, S&P said. If the U.S. defaults on some obligations after Aug. 2, even if it pays bondholders, S&P forecasts short-term interest rates would rise 0.50 percentage points and long-term interest rates by 1 percentage point.
Greater-than-expected tax receipts might give the U.S. Treasury an extra week — until Aug. 10 — before exhausting its borrowing authority, analysts with New York-based Barclays Capital said. The government has collected about $14 billion more in tax revenue since July 14 “than we were expecting,” the analysts wrote.
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