No Debt Ceiling Increase? Obama Can Raise It

27 July 2011 |permalink | email article

Andrew Ross Sorkin, a financial columnist for The New York Times, and author of the 2010 best seller, Too Big to Fail, observed Tuesday that the Obama administration has been preparing the country for the worst, with officials officially saying the sky is about to fall.

The award-winning journalist suggests that while the sky may indeed fall if both sides can’t compromise, the fact that the market has been calm has served only to deepen the resistance to a deal. He quotes Neil M. Barofsky, the former inspector general of TARP: “It’s so typical of the way Treasury and the Fed treat everything – it is always to warn that Armageddon is coming.”

Sorkin notes that Treasury Secretary, Timothy F. Geithner, is among those who may have miscalculated, observing that he has consistently held out Aug. 2 as the cutoff date for lawmakers to reach a compromise, and after that date the government might not be able to send out Social Security checks or Medicare payments.

Geithner told Sorkin in May that he was expecting to reach a deal by mid-July, way ahead of the final deadline. “Why would you want to experiment? In July, you’d want this done.” Sorkin’s take away: the market seems to believe the deal was a false deadline. “In other words, the United States has some wiggle room.”

Sorkin was told by Mohamed El-Erian, chief executive of Pimco, the large bond manager, that “the markets believe the political parties will reach a compromise agreement to avert default,” especially considering that they may have a bit more time on the doomsday clock.

Standard & Poor’s threatened that it would cut the United States rating if lawmakers didn’t come up with a “credible” solution. Sources say America’s AAA could still drop a point, terrible news for everyone. My hunch is Obama is prepared to sign a single piece of paper by August 2 increasing the debt ceiling limit to 2013, foiling a House GOP effort to make it a 2012 election year issue. 

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