The Republican-led House of Representatives and Democratic-led Senate went ahead Friday with separate measures to avoid a U.S. default on August 3rd. The two parties are currently involved in a political standoff on how to resolve the U.S. debt situation.
John Boehner, the top Republican in the House of Representatives, reworked his proposal to cut spending and raise the government’s borrowing authority after opposition from his party’s conservative members forced him to postpone votes twice in two previous days. The conservatives wanted a balanced-budget amendment to the Constitution, and it was added to Mr. Boehner’s bill.
Mr. Boehner’s bill calls for a $900-billion increase in borrowing authority, which is required for the U.S. to keep paying all its bills after next Tuesday, and $917-billion in spending cuts.
At the same time, Democratic Senate Majority Leader Harry Reid worked on an alternative bill to cut spending by $2.2-trillion and raise the debt limit by $2.7-trillion. That would be enough to meet President Obama’s terms that it tides the Treasury over until 2013.
Boehner planned to try for another vote late Friday. Even if it passes, it likely won’t pass in the Senate. Reid signaled he would push ahead with his own plan, but that has little chance of passing in the House. However, the bills could provide the grounds for behind-the-scenes talks by congressional leaders which hopefully lead to a compromise that could win approval in both chambers before Tuesday’s deadline.
President Obama cited the potential effects on the economy as he urged lawmakers to find a way out of gridlock. He said that for all the partisanship, the two sides were not that far apart. Both parties agree on initial spending cuts to take effect in exchange for an increase in the debt limit, he said, as well as on a way to consider additional reductions in government benefit programs in the coming months.
According to the U.S. Treasury, the American government will run out of money on August 3rd and will then have to cut government spending, sell government assets, or default (miss coupon payments on U.S. Treasuries). The possible outcomes to the U.S. debt situation are: the debt ceiling is extended immediately, the debt ceiling is not extended immediately, or a U.S. default. Most analysts are saying that a default is the worst case scenario and that a deal to increase the debt ceiling will be struck, likely at the eleventh hour.
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Market Wrap-up (July 29, 2011)
The TSX closed at 12946, down -4.07% over the past week.
The DOW closed at 12143, down -4.24% over the past week.
The S&P closed at 1292, down -3.94% over the past week.
The Nasdaq closed at 2756, down -3.60% over the past week.
Gold closed at 1625, up 1.37% over the past week.
Oil closed at 95.92, down -3.80% over the past week.
The CAD/USD closed at 1.0464, down -0.83% over the past week.