JEFFREY BROWN: Much talk, but little movement. The high-stakes debt and deficit impasse continued today, and last night’s dueling primetime speeches by President Obama and Speaker Boehner only seemed to reinforce the bitter stalemate over raising the country’s borrowing limit.
NewsHour congressional correspondent Kwame Holman begins our coverage.
KWAME HOLMAN: It was House Speaker John Boehner, who had the last word last night, who was out again early this morning pushing his plan.
REP. JOHN BOEHNER, R-Ohio speaker of the House: We have a bill that is a reasonable approach, negotiated with the Senate leadership, that really is common sense. It’s reasonable. It’s responsible. It can pass the House and it can pass the Senate. And I hope the president will consider signing it into law.
KWAME HOLMAN: Meanwhile, at the White House, Press Secretary Jay Carney again pushed the need for quick action as the president’s advisers announced they will recommend a veto of the latest House GOP plan.
JAY CARNEY, White House press secretary: Time is running out. So, while we remain confident, we are also — we also understand some of the anxiety out there because we are pushing this to the last minute. And that — that shouldn’t be the case. But in the end, we believe Congress will act appropriately.
KWAME HOLMAN: At issue now are two competing plans, Speaker Boehner’s: a six-month $1 trillion increase in the debt ceiling coupled with $1.2 trillion in spending cuts. And Senate Majority Leader Harry Reid’s plan, which would raise the debt ceiling until 2013 and reduce deficits by $2.7 trillion over 10 years with only spending cuts.
And, today, a new poll from Reuters/Ipsos showed continued public dissatisfaction with the failure to agree on a plan — 31 percent of respondents blamed congressional Republicans for the breakdown in negotiations, while 21 percent held President Obama responsible. Only 9 percent faulted Democratic lawmakers.
In his speech last night, the president urged Americans to let their lawmakers know how they feel about the debt limit debate. By this morning, congressional officials were reporting the House switchboard was near capacity and suggested backup numbers. But with votes on both plans scheduled for as early as tomorrow, it was far from clear either debt limit proposal has enough support to pass the House and Senate and be sent to the president.
On the Senate floor, Democratic Leader Reid urged Republicans to help give his plan the 60-vote supermajority it likely will need.
SEN. HARRY REID, D-Nev. majority leader: Every single spending cut in the proposal has already been endorsed by Republicans. The cuts have already been voted for by Republicans in both houses of Congress. In short, it’s everything Republicans have demanded wrapped up in a bow and delivered to their door.
KWAME HOLMAN: Reid later suggested Boehner’s plan had no hope in the Senate.
SEN. HARRY REID: Speaker Boehner’s plan is not a compromise. It was written for the Tea Party, not the American people. Democrats will not vote for it. Democrats will not vote for it. Democrats will not vote for it. It’s dead on arrival in the Senate.
KWAME HOLMAN: But there also were indications that plan might not even get enough Republican votes to pass the House.
Ohio Republican Jim Jordan:
REP. JIM JORDAN, R-Ohio: I am confident as of this morning that there were not 218 Republicans in support of the plan.
KWAME HOLMAN: The person responsible for delivering Republican votes, Majority Leader Eric Cantor, told members in a closed-door meeting to “stop grumbling and whining and come together as conservatives.”
And with the two parties still apart in Washington, in New York, the new head of the International Monetary Fund warned that a failure to resolve the debt-ceiling issue could damage not just America’s economy.
CHRISTINE LAGARDE, International Monetary Fund: Frankly, to have a default or to have, you know, a significant downgrading of the United States’ signature would be a very, very, very serious event — not for the United States alone, but for the global economy at large, because the consequences would be far-reaching.
KWAME HOLMAN: And with the U.S. economy’s AAA credit rating also on the line, investors can only watch and wait with the clock ticking to the Aug. 2 deadline, now a week away.
JEFFREY BROWN: And apologies. We had one of those graphics wrong in that report. It was 9 percent Democrats.
Now we look more closely at the entrenchment in Washington and the reaction on Wall Street with Gerald Seib, a columnist and executive Washington editor for The Wall Street Journal. Andrew Ross Sorkin is a financial columnist for The New York Times and co-anchors CNBC’s “Squawk Box.” And Gillian Tett is the U.S. managing editor for The Financial Times.
I want to go round quickly with a “Where are we now?”
Jerry Seib, first in Washington.
You watched the report. Where are we?
GERALD SEIB, The Wall Street Journal: We’re in a mess, as Kwame indicated.
There’s going to be a vote in the House tomorrow on a Boehner plan. It’s under siege from the right tonight, not from the left. Conservatives have come out and said it doesn’t do enough. We want more. We want a balanced budget amendment.
There is going to be some conservatives who vote against it. The question is, can it pass the House? And if it doesn’t, then the action moves to the Senate, and it’s going to be Harry Reid’s ball there.
JEFFREY BROWN: Now, Gillian Tett, what about on Wall Street and international markets? Where are we today?
GILLIAN TETT, The Financial Times: International markets are absolutely on tenterhooks, because up until now there really has been a pretty blithe assumption that sooner or later politicians would strike a deal, and it would probably be last-minute, but a deal would be done before Aug. 2.
What is really starting to think in right now is that not only is there a growing risk the rating agencies could downgrade U.S. debt, even if there is some kind of short-term Band-Aid solution, but secondly there may not even be a deal by August the 2nd. And so a lot of people in the financial markets right now are starting to look at what-if scenarios and creating plans for what they half-jokingly call doom day, potential — or D-day, potential default day.
JEFFREY BROWN: Well, Andrew, now, you wrote today about this what I will call a delicate dance in which we hear warnings of the sky falling, what Gillian was just talking about, but we also hear reassurances that this isn’t going to happen.
Where do you see us today?
ANDREW ROSS SORKIN, The New York Times: Well, that’s actually the problem, which is that we’re speaking or the politicians are speaking to two different groups.
They’re speaking to the public and the politicians around them. There’s the Obama administration saying that, you know, the sky is falling if you don’t do this. And on the other hand, they are saying we’re going to get this done. And they’re speaking to investors try to reassure them that this is a manmade problem. It’s a manmade deadline. And it also can have a manmade solution.
So there is something disingenuous about both pieces of it. At the same time, I think oddly enough while up until today people felt that there were rational minds, in fact, I think Obama’s speech last night really showed how big the gulf is and how big the divide is and actually now has people a little bit more nervous than they have ever been before.
JEFFREY BROWN: Now, speaking of divides, Jerry Seib, your column today, you tried to look at how we got here. And you see this as the culmination of some long-term trends.
GERALD SEIB: Yes, this is not an accident.
There is — behind the squabbling, which looks silly on the surface, there are some big issues here. The biggest one is there is a big and unresolved debate in this country about the size and role of government in the 21st century economy. That’s not been resolved. This is in many ways a proxy for that.
Overlaid with that, you have had increasing trend toward what I think is really hyper-partisanship in Congress, the two parties starting out, the Republican Party getting more conservative, the Democratic Party getting more liberal, over time, over a generation there being fewer people in the middle from each party. And you put those two trends together and you have a recipe for gridlock. And you’re seeing the consequences.
JEFFREY BROWN: Now, Gillian, that, of course, is a debate that has taken place in many countries. How would you frame this question of divisiveness, and especially over the role of government?
GILLIAN TETT: Well, I think one of the key things to realize right now is that financial markets have been locked not so much in a kind of beauty contest in recent months, but in an ugly contest, in the sense that investors around the world have been looking at first Japan and seeing a lot of problems there, more recently the Eurozone, which is mired in its own quasi-crisis.
And that has helped to distract a lot of investors from the fact that Washington is looking increasingly dysfunctional for the reasons we just heard. And the problem right now is that, as Andrew said, investors are just starting to really wake up to the potential risks.
The speech we heard from the president last night really wasn’t particularly reassuring in terms of illustrating the polarization. And the danger is that although we have not seen any reaction in the markets yet, if investors do start to react on a big scale, we could see some potentially pretty turbulent, volatile times.
JEFFREY BROWN: Andrew, these long-term trends that Jerry started here that we’re talking about, investors surely know of them. They have been with us for a long time. Now, who are these investors that we’re talking about? What are they looking at? Are there other places that they can go for safe havens to invest their money?
ANDREW ROSS SORKIN: Well, that actually is the ultimate question. You know, life is relative. The world is relative. And where are you going to place your money?
People are still betting on treasuries. In an environment where people are worried, by the way, about the deficit-ceiling next week and they’re worried about this even larger problem that Gillian touched on, which is that we could get a downgrade from a Standard & Poor’s or a Moody’s, irrespective, frankly, of whether we actually beat the Aug. 2 deadline or not, because ultimately is there a longer-term credible plan?
And ultimately are we as a government, as a country, good for the money? That is the fundamental issue. And frankly given the stalemate in Washington, there’s becoming a larger question over time whether we will be good for that money. And that’s what Standard & Poor’s and Moody’s are going to be looking at. Do we come up with a large, credible plan?
And that’s why there’s such a divide even over whether you come up with a short-term sort of stopgap measure or whether you actually need something that actually is large and big.
JEFFREY BROWN: Does that — Andrew, does that look like an increasing possibility, that you get a deal, but it’s not quite the deal and the creditworthiness is still impacted?
ANDREW ROSS SORKIN: That’s the exact problem, that people are now talking about, can we just get over this Aug. 2 deadline? Can we have a short-term solution, you know, punt it until the next election?
That may make sense politically, but does it make sense from an economic standpoint? Does it create even more uncertainty? And do the rating agencies say, you know what, we don’t ultimately know where this country really lands? And I think that’s the big question.
But you asked probably the most — the smartest question, which is even if that’s the case, even if we get downgraded, will people stop buying treasuries? And on a relative basis, compared to what is happening in Europe and everywhere else in the world, we may still look like not a bad bet at least.
JEFFREY BROWN: Jerry, you…
GERALD SEIB: But the problem in that scenario is that the cost to the government of getting money, of the price you have to pay in interest to get the money that you need, will go up.
And if we’re talking about a problem that is rooted in a deficit, a federal deficit that has grown dramatically in the last few years, you’re now going to make that worse by making borrowing costs for the government higher. So the irony in this is that if the net result of trying to deal with a deficit is going to be to make borrowing costs higher so that the deficit becomes bigger rather than smaller over time, everybody will have shot themselves in the foot.
JEFFREY BROWN: Do you — Jerry, starting with you, do you see much going on behind the scenes, contingency plans, you know, what-ifs, especially here in Washington? You start with Washington here, Treasury, the Fed.
GERALD SEIB: Well, I told somebody today that is striking how many old pros around Washington are really worried now, because there is very little of that going on — at least very little of that that is evident.
I think that what is going to happen in the end is, there is going to have to be an attempt by John Boehner, Republican speaker of the House, and Harry Reid, Democratic leader of the Senate, to piece something together at the end. The dialogue between the White House and John Boehner is strained to say the least right now.
In the end, there is going to be something different coming out of the House and something different coming out of the Senate, if anything can emerge from either of those places at all. And you’re going to ultimately have to have the two partisan leaders of Congress, I think, figure out, how do we fix this at the 11th hour? And if those conversations have started, they’re not very visible, but they may be under way.
JEFFREY BROWN: Gillian Tett, what about — what do you see in terms of contingency plans or what have you, either at the markets or at the Fed?
GILLIAN TETT: Well, we have got a story on the front page of The Financial Times tomorrow pointing out that you have got a lot of money market funds, a lot of banks, a lot of other asset managers right now who are basically stockpiling money, getting ready for what could be a pretty turbulent couple of weeks.
No surprise there. Of course, you have got the Fed and other regulators talking about a lot of what-if plans. They’re trying to keep the system moving smoothly in things. But to my mind, there are two key things that people need to watch over the next couple of weeks. Firstly, are foreign investors going to carry on buying U.S. treasuries, or is there any risk that they should start to panic?
And, secondly, what is going to happen to what financiers call the repo market? It’s the sort of inner cogs of the financial system, a bit like the transmission mechanism of a car. And it tends to be ignored most of the time. But if it breaks down, if something goes wrong there, the consequences could be quite nasty.
And there is a risk that with all these shenanigans, if the U.S. rating is downgraded or if there is even a technical default, that that so-called repo market could start to seize up. And that would be serious.
JEFFREY BROWN: All right. Well, on that serious note, we will watch.
And I want to thank you all for now. Gillian Tett, Jerry Seib, Andrew Ross Sorkin, thanks a lot.
ANDREW ROSS SORKIN: Thank you.