Big Business Tells Congress to Raise the Debt Ceiling

[Toro]

Big business has publicly jumped into the debt ceiling debate, warning lawmakers of dire consequences if they wait too long to raise the legal cap on government borrowing.

"We strongly agree that the failure to increase the statutory debt limit in a timely fashion could have a significant and long-lasting negative impact on the U.S. economy," according to a letter delivered to Congress on Wednesday by more than 50 business groups.

In addition, the groups said they are also "extremely concerned" about federal debt and large annual budget deficits. ...

Until Wednesday, the financial community hadn't applied strong public on the issue.

"With economic growth slowly picking up, we cannot afford to jeopardize that growth with the massive spike in borrowing costs that would result if we defaulted on our obligations," the letter stated. "It is critically important that the United States stands fully behind its legal obligations."

Some of the most powerful business lobbying groups in Washington signed on to the petition.

Among them: The American Gas Association, the Business Roundtable, Financial Services Forum, National Association of Manufacturers, Financial Services Roundtable and the U.S. Chamber of Commerce.

Business to Congress: Raise debt ceiling now - Yahoo! Finance

 

[Toro]

Any delay in making an interest or principal payment by Treasury even for a very short period of time would put the U.S. Treasury and overall financial markets in uncharted territory, and could trigger another catastrophic financial crisis. It is impossible to know the full impact of such a crisis on overall economic growth and on Treasury’s financing costs. However, the lessons from the recent crisis suggest that several damaging consequences will likely result, ultimately raising Treasury’s long-term funding costs and increasing the burden on the American taxpayer. These consequences stem from five developments that could likely occur if Treasury were to default on its obligations as a result of a failure to raise the debt limit in a timely manner.

First, foreign investors, who hold nearly half of outstanding Treasury debt, could reduce their purchases of Treasuries on a permanent basis, and potentially even sell some of their existing holdings. A worrisome precedent is the sharp decline in foreign sponsorship of [government-sponsored enterprise, or G.S.E.] debt since Fannie Mae and Freddie Mac were placed under conservatorship. Despite assurances from Treasury officials regarding the U.S. commitment to these institutions, foreign sponsorship has yet to return to pre-conservatorship levels. If foreigners began curtailing their investment in Treasuries as a result of a default, Treasury rates, and thus Treasury’s borrowing costs, would undoubtedly rise. A sustained 50 basis point increase in Treasury rates would eventually cost U.S. taxpayers an additional $75 billion each year.

Second, a default by the U.S. Treasury, or even an extended delay in raising the debt ceiling, could lead to a downgrade of the U.S. sovereign credit rating. Indeed, Standard and Poor’s decision to change the U.S. ratings outlook from stable to negative this week indicates a one-in-three chance that Standard and Poor’s will downgrade the U.S. rating within the next two years. One reason cited for the change in the outlook is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges. It is possible that a default, or even a delay in acting on the debt ceiling, will be perceived as an increased indication of the political inability to forge a compromise on essential long-term fiscal reforms. The consequences of a ratings downgrade would be significant, with the potential for Treasury rates to rise by a full percentage point for each one-notch downgrade.

Third, the financial crisis you warned of in your April 4th Letter to Congress could trigger a run on money market funds, as was the case in September 2008 after the Lehman failure. In the event of a Treasury default, I think it is likely that at least one fund would be forced to halt redemptions or conceivably “break the buck.” Since money fund investors are primarily focused on overnight liquidity, even a single fund halting redemptions would likely cause a broader run on money funds. Such a run would spark a severe crisis, disrupting markets and ultimately necessitating the same kind of backstops that Treasury and the Federal Reserve initiated in the aftermath of the 2008 crisis. Such further increases in Treasury’s off-balance-sheet commitments are likely to be viewed negatively by investors and ratings agencies, which will potentially put further downgrade pressure on U.S. sovereign ratings.

Fourth, a Treasury default could severely disrupt the $4 trillion Treasury financing market, which could sharply raise borrowing rates for some market participants and possibly lead to another acute deleveraging event. Because Treasuries have historically been viewed as the world’s safest asset, they are the most widely-used collateral in the world and underpin large parts of the financing markets. A default could trigger a wave of margin calls and a widening of haircuts on collateral, which in turn could lead to deleveraging and a sharp drop in lending.

Fifth, the rise in borrowing costs and contraction of credit that would occur as a result of this deleveraging event would have damaging consequences for the still-fragile recovery of our economy. In 2008, placing the GSEs in conservatorship combined with a tightening of credit standards caused mortgage spreads to widen by 1.5 percent, ultimately raising mortgage rates for consumers. A similar rise in mortgage and Treasury rates would adversely impact economic growth, potentially pushing the U.S. economy back into recession.

Finally, I would emphasize that because the long-term risks from a default are so large, a prolonged delay in raising the debt ceiling may negatively impact markets well before a default actually occurs. This is because investors will likely undertake risk-management actions in preparation for a potential default. For example, borrowers who rely on short-term funding markets, including the GSEs, may attempt to pre-fund themselves or hold excess liquidity through July, distorting money market rates. Additional effects could include large auction concessions, especially if Treasury were forced to delay auctions for cash management purposes. I would also expect to see weaker demand for Treasury securities as uncertainty increases on whether the debt limit will be raised. Both of these effects would negatively impact Treasury’s borrowing costs.

Given the magnitude of the adverse consequences a default would have on Treasury borrowing costs and the health of the broader economy, action is urgently needed to increase the statutory debt limit. Swift action would also help ease the existing uncertainty in financial markets that could begin translating into real market impacts well before Treasury exhausts extraordinary actions at its disposal to postpone a default. Notwithstanding your significant efforts to date, your continued attention to this important issue is greatly appreciated.

Banks, Hedge Funds Threaten A Repeat Of Lehman If Debt Ceiling Not Raised | zero hedge

 

[jillian]

that kind of leaves the repubs at a disadvantage. do they upset their teaparty, 'ihategovernment' types or do they upset their corporate clientele?

seriously, it seems like there's not a lot of choice.

 

[Modbert]

that kind of leaves the repubs at a disadvantage. do they upset their teaparty, 'ihategovernment' types or do they upset their corporate clientele?

seriously, it seems like there's not a lot of choice.

Are the Republicans willing to drive the economy off a cliff for their base? Guess we're going to find out.

 

[jillian]

that kind of leaves the repubs at a disadvantage. do they upset their teaparty, 'ihategovernment' types or do they upset their corporate clientele?

seriously, it seems like there's not a lot of choice.

Are the Republicans willing to drive the economy off a cliff for their base? Guess we're going to find out.

if they have to choose between the base and their campaign contributors?? i'm going to be the base gets it in the neck.

 

[Toro]

The Republicans will lift the debt ceiling. Much of the rhetoric is political posturing. They have to appease their base so they have to look like they are serious. But they have been told that not doing so would be catastrophic.

Members of Congress opposed to increasing the debt limit are like people who give their credit cards to a friend, telling them to buy whatever they like. Then they refuse to pay the bill in order to punish their friend for overspending. But their friend still has whatever was bought with the credit card and the only ones being punished are the shareholders of the credit card company, whose profits will be lower because one of its cardholders is fundamentally dishonest. ...

Many conservatives say that as long as it has sufficient monthly cash flow from taxes to pay monthly interest on the debt then the Treasury can just stop making payments to doctors and hospitals that provide Medicare services, stop paying salaries to federal workers, stop paying vendors that provide food and ammunition for our troops in the field, and, above all, stop paying Social Security benefits.

How the Treasury will decide who gets paid and who doesn’t is a complete mystery and a problem that no conservative to my knowledge has given a second’s thought to. There is no law allowing it to prioritize payments except in a couple of very limited cases, which it will begin using shortly. In any event, it is a very bad idea to give the Treasury secretary the unilateral power to decide who and when those who are owed money by the federal government will get it.

Although some people argue that Social Security benefits are not jeopardized as long as there are sufficient assets in the Social Security trust fund, they don’t understand that securities held by the trust fund are not marketable, and if Treasury can’t borrow it won’t have the cash to redeem them. That is why Congress had to pass a special law back in 1996 allowing the debt limit to be increased by the amount needed to pay Social Security benefits during an earlier debt limit impasse.

Debt Ceiling May Come Crashing Down on Treasury | Capital Gains and Games

 

[waltky]

Granny says dem Chinese done stuck a corncob stuck up his butt...

U.S. hits debt ceiling
16 May`11 -- It's official: The U.S. government hit the debt ceiling on Monday, Treasury Secretary Timothy Geithner told Congress.

Geithner said he would have to suspend investments in federal retirement funds until Aug. 2 in order to create room for the government to continue borrowing in the debt markets. The funds will be made whole once the debt limit is increased, Geithner said. "Federal retirees and employees will be unaffected by these actions." He went on to urge Congress once again to raise the country's legal borrowing limit soon "to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens."

Congress, meanwhile, is not showing any signs of budging. Many Republicans and some Democrats say they won't raise it unless Congress and President Obama agree to significant spending cuts and other ways to curb debt. Geithner told Congress that he estimates he has enough legal hoop-jumping tricks to cover them for another 11 weeks or so. But then he said that's it. If lawmakers don't get it together by Aug. 2, the United States will no longer be able to pay its bills in full. The rhetoric about whether to raise the ceiling and under what conditions has been loud, harsh and, at times, misleading. Exasperatingly, it's far from over.

The tap dance begins: Treasury Secretary Geithner said he can move money around to keep U.S. out of default until Aug. 2.

What is the debt ceiling exactly? It's a cap set by Congress on the amount of debt the federal government can legally borrow. The cap applies to debt owed to the public (i.e., anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare. The first limit was set in 1917 and set at $11.5 billion, according to the Center for a Responsible Federal Budget. Previously, Congress had to sign off every time the federal government issued debt.

How high is the debt limit right now? The ceiling is currently set at $14.294 trillion. Based on Treasury's announcement, it hit that mark on Monday morning. And by taking various extraordinary measures like suspending investments in federal retirement funds, Geithner will be able to bring total debt down enough to allow the government to continue borrowing until Aug. 2.

How is the ceiling determined?

See also:

China Cuts Holdings of U.S. Treasurys for 5th Month
Monday, May 16, 2011 Washington (AP) - China, the biggest buyer of U.S. securities, trimmed its holdings for a fifth straight month.

The Treasury Department said Monday that China cut its holdings by $9.2 billion to $1.14 trillion. Japan, the second-largest foreign holder, boosted its holdings by $17.6 billion to $907.9 billion. There had been concerns that the March 11 earthquake and tsunami would lead Japan to scale back its purchases so it could use the money for reconstruction. Total foreign holdings increased by $4.9 billion to $4.48 trillion.

Treasury Secretary Timothy Geithner said the government will reach its $14.3 trillion borrowing limit on Monday. Treasury officials have said they will be able to continue regular debt auctions until August. Republicans have held back supporting an increase in the borrowing limit, saying they first want Congress agree to more spending cuts. Geithner on Monday said he will halt investments in two big government pension plans immediately to allow the government to continue borrowing money for the next few months.

Geithner has suspended pension payments in past congressional debates over raising the borrowing limit. The money that the two pension funds will lose will be replaced if Congress votes to raise the borrowing limit. Geithner said the bookkeeping maneuvers and unexpected revenue will allow the government to delay an unprecedented default on the national debt until Aug. 2.

Source

 

[waltky]

11 weeks an' it all gonna blow up in Obama's face...

US government hits debt ceiling, lighting 11-week fuse
Monday, 05.16.11 WASHINGTON -- Treasury Secretary Timothy Geithner informed Congress on Monday that the United States has reached its legal debt limit, setting off a ticking time bomb that could explode in less than three months if lawmakers can't bridge differences and allow more government borrowing.

In hitting the $14.3 trillion debt ceiling - the limit on how much the government can borrow - the Obama administration on Monday began temporarily halting payments to the retirement and federal pension accounts of federal workers and started borrowing from those funds, to be restored later. Geithner sent a letter to Senate Majority Leader Harry Reid, D-Nev., warning that the government can move money around for about 11 weeks but if a new debt ceiling isn't agreed to by Aug. 2, the U.S. government could effectively default on its obligations to its creditors. He warned of "catastrophic economic consequences for citizens" unless Congress raises the debt ceiling. An increase of about $2 trillion is expected, enough to get the issue past the 2012 elections before Congress would have to lift it again.

Republicans who control the House of Representatives vow to link raising the debt ceiling to cuts in government spending of at least equal measure. In a combative statement Monday, House Speaker John Boehner, R-Ohio, upped the ante. "As I have said numerous times, there will be no debt limit increase without serious budget reforms and significant spending cuts, cuts that are greater than any increase in the debt limit." Boehner has called previously for $2 trillion in spending cuts as part of any deal to raise the debt ceiling.

Wisconsin Republican U.S. Rep. Paul Ryan, the chairman of the House Budget Committee, repeated the linkage in a speech Monday in Obama's adopted hometown. "For every dollar the president wants to raise the debt ceiling, we can show him plenty of ways to cut far more than a dollar of spending," Ryan told the Economic Club of Chicago. "Given the magnitude of our debt burden, the size of the spending cuts should exceed the size of the president's debt limit increase."

Republicans rule out tax increases and any significant cuts in defense spending. The United States continues to fight wars in Iraq and Afghanistan paid for with borrowing, the only time in U.S. history that wars weren't offset at least partially with some sort of tax. Democrats insist that Social Security is off the table, as is an end to Medicare, but they are open to changes in Medicare funding. If Congress fails to raise the debt ceiling by Aug. 2, it would force the Obama administration to choose between paying creditors or paying for military operations, Social Security and Medicare payments, and other commitments.

Read more: US government hits debt ceiling, lighting 11-week fuse - Politics Wires - MiamiHerald.com

 

[waltky]

No new spending cuts, no new debt ceiling...

House Republicans reject US debt limit bill
31 May 2011 - House Speaker John Boehner has said allowing more debt without spending cuts would be "irresponsible"

Republicans in the US House have rejected a bill to raise the US debt limit, in what analysts describe as a bid to force government spending cuts. The chamber voted 318-97 against the bill, rejecting a call by US President Barack Obama to raise the debt limit without conditions. Republicans have called for spending cuts in return for a debt increase.

The US treasury department has warned the US risks default if Congress does not authorise more borrowing by August. Some Democrats who supported Mr Obama's position also voted against the bill after Democratic leaders criticised the bill as a Republican political ploy, noting Republican leaders brought the bill to a vote, then directed their caucus to vote against it.

Republicans leaders have not indicated they will ultimately refuse to grant a debt limit increase, but say the US must bring government spending in line with tax revenue.

The US national debt is $14.3 trillion (£8.7 trillion), and the annual budget deficit is roughly $1.5 trillion. Leaders of both parties agree to the need to trim the budget, but Republicans have refused to allow tax increases, while Democrats have vowed to protect costly social programmes.

BBC News - House Republicans reject US debt limit bill

 

[Sallow]

Big business has publicly jumped into the debt ceiling debate, warning lawmakers of dire consequences if they wait too long to raise the legal cap on government borrowing.

"We strongly agree that the failure to increase the statutory debt limit in a timely fashion could have a significant and long-lasting negative impact on the U.S. economy," according to a letter delivered to Congress on Wednesday by more than 50 business groups.

In addition, the groups said they are also "extremely concerned" about federal debt and large annual budget deficits. ...

Until Wednesday, the financial community hadn't applied strong public on the issue.

"With economic growth slowly picking up, we cannot afford to jeopardize that growth with the massive spike in borrowing costs that would result if we defaulted on our obligations," the letter stated. "It is critically important that the United States stands fully behind its legal obligations."

Some of the most powerful business lobbying groups in Washington signed on to the petition.

Among them: The American Gas Association, the Business Roundtable, Financial Services Forum, National Association of Manufacturers, Financial Services Roundtable and the U.S. Chamber of Commerce.

Business to Congress: Raise debt ceiling now - Yahoo! Finance

You gotta love these folks. They spend like crazy to get nuts into congress...and NOW seeing the "fruits of their labor" do every crazy thing they said they would do..they start dictating to them. And in a panic.

 

[Sallow]

that kind of leaves the repubs at a disadvantage. do they upset their teaparty, 'ihategovernment' types or do they upset their corporate clientele?

seriously, it seems like there's not a lot of choice.

Are the Republicans willing to drive the economy off a cliff for their base? Guess we're going to find out.

There are 2 Republican parties now. And it was the core Republicans that caused this situation.

 

[Mad Scientist]

that kind of leaves the repubs at a disadvantage. do they upset their teaparty, 'ihategovernment' types or do they upset their corporate clientele?

seriously, it seems like there's not a lot of choice.

Are the Republicans willing to drive the economy off a cliff for their base? Guess we're going to find out.

There are 2 Republican parties now. And it was the core Republicans that caused this situation.

Actually there are two parties. The T.E.A. Party, and and amalgamation of Dems and Repubs who want to continue fucking us.

 

[PLYMCO_PILGRIM]

Big business has publicly jumped into the debt ceiling debate, warning lawmakers of dire consequences if they wait too long to raise the legal cap on government borrowing.

"We strongly agree that the failure to increase the statutory debt limit in a timely fashion could have a significant and long-lasting negative impact on the U.S. economy," according to a letter delivered to Congress on Wednesday by more than 50 business groups.

In addition, the groups said they are also "extremely concerned" about federal debt and large annual budget deficits. ...

Until Wednesday, the financial community hadn't applied strong public on the issue.

"With economic growth slowly picking up, we cannot afford to jeopardize that growth with the massive spike in borrowing costs that would result if we defaulted on our obligations," the letter stated. "It is critically important that the United States stands fully behind its legal obligations."

Some of the most powerful business lobbying groups in Washington signed on to the petition.

Among them: The American Gas Association, the Business Roundtable, Financial Services Forum, National Association of Manufacturers, Financial Services Roundtable and the U.S. Chamber of Commerce.

Business to Congress: Raise debt ceiling now - Yahoo! Finance

So wait.....the Dems want to raise it but the Reps want to hold it yet big business wants to raise it to.

My mind is blown!!!!!!!!!!!!!!! The dems are the party of big business now (ok well the bailouts and tarp proved that to me already but i just wanted to have some fun with this one )

 

[B. Kidd]

2-party system, a Triumvirate Gov't......doesn't matter in a Plutocracy.

 

[LordBrownTrout]

Don't raise it. I'm tired of the fear mongering, how we're going off a cliff if we don't. Whatever.... Pay the effing bills and quit the effffing spending. We're already sailing over the cliff, thanks to the dem and repubs.

 

[PLYMCO_PILGRIM]

Don't raise it. I'm tired of the fear mongering, how we're going off a cliff if we don't. Whatever.... Pay the effing bills and quit the effffing spending. We're already sailing over the cliff, thanks to the dem and repubs.

I agree, rip the band-aid off because the rash from the allergic reaction to years of band-aids is going to kill us.