As a sign of just how much distress Washington is sowing on Wall Street, where the stock market sank for the fifth straight day, the heads of the most powerful U.S. financial institutions united to warn Congress and the President that they must end their standoff over the government’s debt limit.
“The consequences of inaction – for our economy, the already struggling job market, the financial circumstances of American businesses and families, and for America’s global economic leadership – would be very grave,” the chief executives of Bank of America, Goldman Sachs and others insisted in a letter urging Congress to reach an agreement “this week.”
Their missive did little to concentrate minds in the U.S capital, however, as Republicans, Democrats and the White House fought to maximize their leverage in shaping any final deal before the government runs out of room to borrow money on Aug. 2.
The tension escalated on Thursday night as House of Representatives Speaker John Boehner was forced to call off a vote on his bill to extend the U.S. government’s borrowing ability, as dozens of members of his own Republican caucus continued to rebel.
Mr. Boehner had hoped his bill’s passage would strengthen his hand as he seeks an ultimate compromise that hews more closely to Republican priorities than those of the White House and Democrats in Congress. But hardliners in his own caucus felt he has already compromised too much.
With only four days left before the Treasury runs up against its current $14.3-trillion (U.S.) debt ceiling, there is still no guarantee the two parties can reach an agreement in time to avert a default after Aug. 2.
The uncertainty is increasingly weighing on investors, who have sliced more than 400 points off the New York Stock Exchange’s leading index since last week. Indeed, the entire investing world is on guard.
“In Asia, the U.S. debt crisis continued to overhang capital markets and dominate trading sentiment,” Brian Jackson, emerging markets analyst with RBC Dominion Securities, said in Hong Kong as Asian stocks fell in early trading on Friday.
Despite the difficulties Mr. Boehner has had in getting his caucus behind him, Senate Majority Leader Harry Reid is likely to have an even harder time getting a Democratic bill through the upper chamber. He still lacks the 60 votes needed to override a Republican filibuster.
The main sticking points remain the size of any increase in the Treasury’s borrowing limit, whether it would be enough to avoid another debt-ceiling vote before the 2012 presidential election, and the amount of deficit reduction required to satisfy the GOP and credit rating agencies.
The White House and Democrats have abandoned demands to include tax increases on the wealthy in any deficit-reduction package.
After at first seeking a “clean” debt-ceiling increase with no conditions attached, Mr. Obama this month proposed a “grand bargain” with Republicans in the form of a $4-trillion deficit-reduction package over 10 years made up of spending cuts and tax increases.
But on Thursday, White House press secretary Jay Carney conceded for the first time that the grand bargain was “not likely.” The administration’s main priority now is securing a debt-ceiling increase of at least $2.4-trillion. That would relieve Mr. Obama of having to ask Congress to raise it again as he campaigns for re-election next year.
The Boehner bill would lift the debt ceiling by about $1-trillion now and a further $1.6-trillion in early 2012, if Congress agrees to a deficit-reduction package of equal proportion then. Mr. Reid’s plan proposes $2.2-trillion in spending cuts and a single $2.4-trillion increase in the debt limit.
“Our objection is to any proposal that puts us through this three-ring circus again in any short period of time,” Mr. Carney said, voicing the administration’s support for the Reid plan.
Though the Boehner bill would face near certain defeat in the upper chamber, its passage in the House would be a major victory for the Speaker, who has laboured to tame the boisterous cohort of Tea Partiers elected in last fall’s midterm congressional elections.
Many Tea Party members refuse to increase the debt ceiling under any circumstances, or seek trillions more in spending cuts in exchange for their vote. Though there are 240 Republicans in the House, Mr. Boehner spent most of Thursday twisting arms to find the 216 votes he needed. By the end of the evening, it was clear he had come up short. The vote was postponed.
“John has been very diligent about listening to every corner of his caucus to give them input into the crafting of the bill and grow the vote,” GOP strategist Kevin Madden, a former Boehner press secretary, said in an interview. “His message has been that everybody has to put the best interests of the team ahead of their individual interests.”
In a caucus meeting, Majority Whip Kevin McCarthy played an excerpt from the Ben Affleck film The Town, in which an armed robber tests the loyalty of his partner by asking to help him “hurt some people,” no questions asked. But not even that brought the Tea Partiers on board.
With a report from Andy Hoffman in Hong Kong