Now There Is a Serious Risk of a Default, Says ... - Yahoo Finance

If it weren't so serious, the political maneuvering taking place in Washington, DC, right now would look like a theatrical farce. Or a Hallmark channel melodrama.

The general plot: a drop-dead deadline approaches before disaster strikes on Thursday, Oct. 17, while business as usual is on recess. Some members of the opposing parties have been working feverishly to get a deal done in time, but one group within one of the negotiating parties announces Tuesday afternoon it has a new plan, which stalls the other negotiations, leaving everything in place.

That same group with the new plan schedules a vote for Tuesday night, then cancels it because it doesn't have the votes to pass the plan. It's as if everyone were running in circles. And the clock keeps ticking.

But just before noon on Wednesday The New York Times reports that a bipartisan deal on the debt limit and government shutdown has been reached, with votes to follow in the House and Senate as early as this afternoon.

Related: How Big Business Could End the Shutdown Overnight

Here's some background:

Treasury Secretary Jack Lew has said the U.S. will lose its authority to issue new debt as of October 17. The Treasury Department announces Tuesday it will have only $35 billion in cash on hand by Thursday to pay its bills, which is a pittance in a$16 trillion economy with about $12 trillion outstanding in public debt.

Meanwhile Fitch Ratings, a credit rating agency, that until now has maintained a AAA rating on U.S. debt--unlike S&P--put that rating on negative watch, preparing for a downgrade if Congress cannot reach agreement. And a Treasury 3-month bill auction Tuesday afternoon went badly, setting a rate of 0.13%, which seems low but is actually the highest for a 3-month bill auction since February 2011, with demand about 30% less than the average of the past 10 auctions.

Related: Debt Deadline Approaches: Here's What Would Happen If U.S. Defaults

Robert Reich, who was Bill Clinton's Labor Secretary the last time the government shut down in late 1995 and early 1996, tells The Daily Ticker, that the atmosphere in Washington now " is the worst it's been in anybody's memory."

Speaking with Aaron Task before Boehner canceled the vote on the latest House plan Tuesday afternoon, Reich said, "There is a serious risk now of a default"--something he was not expecting just days before.

"It's not the old game of Democrats and Republicans," says Reich, in the video above. "You've got a minority of very extreme right-wing Republicans who are willing to sacrifice the full faith and credit of the United States to get their way."

But that minority is only able to wield it power, says Reich, because House Speaker John Boehner allows it. "If John Boehner were willing to be a statesman and maybe fall on his sword...and go to a full vote in the House on whatever the Senate gives him, then we would be out of this mess."

Related: 'Calamitous Consequences' Ahead if We Go Over the Debt Cliff: Keating

Asked if the President also bears some responsibility for the mess in Washington, Reich says the President is "partly responsible to the extent that his caving in over the last 2-1/2 years [to] this new group of Republicans has encouraged them to ask for more and more...He should have held the line in 2011 when they were threatening then to blow up the economy and not raise the debt ceiling."

Now Reich says financial markets will react badly if they conclude they "cannot rely upon the United States to fulfill its obligation...[with] interest rates spiking, stocks taking a shellacking and global economies reacting."

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Source: http://finance.yahoo.com/blogs/daily-ticker/now-serious-risk-default-says-robert-reich-121700475.html
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