Debt Limit Talks Hit Another Wall as Boehner Calls off Vote

29 July 2011

US stock markets are down, and the S&P 500 Index has been in a depression for the fourth day in a row. All Treasury securities have collapsed after members of Congress failed to show any kind of progress in reaching an agreement on raising the country’s debt ceiling. The dollar appreciated, while commodities became cheaper. Deep Trust Trading Analysts observed that the S&P 500 lost 0.3%, dropping to 1,300.67 points as of 4:00PM in New York. The index’s total drop for the week is currently at 3.3%. Futures on the index fell 0.2% at 6:31PM yesterday after Speaker of the House John Boehner postponed a vote on a bill concerning the debt limit. The drop in treasury bills issued in February, payments on which should be made right after August 2, boosted their yields by four basis points to 0.15%. The dollar index rose 0.2% and the S&P GSCI product index fell 0.2%.

Stocks lost all of the gains they made since the publication of lower than expected unemployment claims after Senate Majority Leader Harry Reed promised to defeat a Republican plan to cut the budget if the corresponding bill comes through the upper house of Congress any later than tomorrow. Boehner postponed a vote on the bill which had been scheduled for 6:00PM in Washington. “Recent news headlines are being driven by the market since investors are acting much more nervous as the deadline looms without any kind of clarity as to what is going to happen,” said Carlo Panaccione, co-founder of Navigation Group, which manages a portfolio of $350 million in Redwood Shores, California. “There could be a lot of different reasons why Boehner delayed the vote, but people are going to be preparing for the worst news.”

The measures proposed by Boehner should guarantee that the debt ceiling be raised immediately by $900 billion while also cutting government spending by $917 billion. This will force Obama to again try to garner the authority to receive a $1.6 trillion loan if Congress succeeds in passing a law on cutting the budget deficit by $1.8 trillion by Christmas. Obama called such a scenario unacceptable, saying that it could lead to the US’s credit rating being downgraded as well as to continuing economic uncertainty. Democrats are trying to find an alternative set of levers that do not have to do with increasing the debt limit in order to help steer the US out of its current quagmire.

According to an unnamed source in the Treasury Department, if the government does default on its debt, the Department of Finance will give priority to paying out interest to holders of government bonds if legislators don’t reach an agreement on raising the debt ceiling. The Department of Finance reported earlier that around $90 billion of debt should be paid – the principal should be paid on August 4 and more than $30 billion of interest needs to be paid by August 15. In general, over $500 billion should be ready for payments to be made in August.

The dollar yesterday was trading a mere 0.4% away from a record low against the Swiss franc right before a planned briefing by administration officials on the stalemate over raising the debt limit, a move which is necessary to avoid default. The Japanese yen reached its highest level against the US dollar right before a report on GDP published today showed that the worst fears regarding the world’s biggest economy are true – the US economy’s growth is at its slowest pace of the past year. Deep Trust Trading analysts are anticipating GDP growth of only 1.8% in the second quarter, compared to the 1.9% growth seen in the first quarter of this year.

Deep Trust Trading Analytical Department


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