Analysis: Washington to Wall Street - Threat of default is real

Tue Sep 24, 2013 7:25pm EDT
 
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By Jason Lange

WASHINGTON (Reuters) - Money lenders trust America so implicitly that they generally dismiss the risk it won't pay its debts. But in the U.S. capital, fears are growing that political dysfunction might trigger the unthinkable.

Government veterans from both political parties are aghast that lawmakers openly speak of managing a default that could be triggered next month if they don't authorize more borrowing.

Another reason for concern is that the debate over the debt ceiling appears stuck on a Republican demand for big spending cuts in exchange for raising the $16.7 trillion borrowing limit.

This could be too tall an order because Washington is already slashing spending on almost everything but the welfare state. To go further, Congress would likely have to make cuts in sacrosanct programs like pensions and healthcare for the elderly, something lawmakers appear loath to do.

"The ingredients to put together a deal are diminishing," said Tony Fratto of consultancy firm Hamilton Place Strategies, which advises investors on the workings of Washington. "Only the tough choices are there," said Fratto, who was a spokesman at the White House and Treasury during the Bush administration.

Most discussion in Congress in recent days hasn't even been focused on the debt ceiling. Rather, lawmakers are racing to approve legislation to keep most government offices running past this month when budgets are due to expire.

Now even the Treasury secretary, whose role usually includes telegraphing confidence to Wall Street, is expressing concern about the nation's ability to keep paying the bills.

"I am nervous by the desire to drive this to the last minute," Treasury Secretary Jack Lew told a business forum last week. Lew described himself as "anxious."   Continued...

 
The U.S. Capitol Building in Washington is pictured before sunrise September 16, 2013. REUTERS/Jason Reed