U.S. gridlock on debt ceiling increasing dangers of default: banks loading ATMs with cash for possible bank runs

October 4, 2013 – WASHINGTON — The U.S. Treasury Department on Thursday released a report warning of potentially “catastrophic” damage should Congress fail to raise the debt ceiling and prevent the government from defaulting on its debt. “A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse,” the report states. In recent weeks, Wall Street has become increasingly skittish about the prospect of default, as top Republicans have argued that a standoff over the debt ceiling offers their party the most leverage to exact concessions from a Democratic Senate and a Democratic president. On Tuesday, House Budget Committee Chairman Paul Ryan (R-Wis.) called the debt limit a useful “forcing mechanism.” President Barack Obama has said he will not negotiate over the full faith and credit of the United States. The cost of insuring one-year U.S. bonds against default has quintupled since Sept. 23, according to data from Markit, a financial information company. Treasury Secretary Jack Lew has said that the government will run out of legal options to avoid defaulting on the national debt by Oct. 17. Thursday’s Treasury report mentioned that even the prospect of default can cause economic problems, including lower consumer confidence, stock market volatility and higher interest rates on business loans and mortgages. An actual default could have consequences for years to come. The U.S. has never defaulted on its debt, which is widely considered to be the world’s safest financial asset. “Considering the experience of countries around the world that have defaulted on their debt, not only might the economic consequences of default be profound, but those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation,” the report states. –Huffington Post

                              Experts warn political miscalculation could end in global economic disaster

Banks loading ATMs with cash: Even as the fear mongering over the debt ceiling hits proportions not seen since 2011 (when it was the precipitous drop in the market that catalyzed a resolution in the final minutes, and when four consecutive 400 point up and down DJIA days cemented the deal – a scenario that may be repeated again), some banks are taking things more seriously, and being well-aware that when it comes to banks, any initial panic merely perpetuates more panic, have taken some radical steps. The FT reports that “two of the country’s 10 biggest banks said they were putting into place a “playbook” used in August 2011 when the government last came close to breaching the debt ceiling. One senior executive said his bank was delivering 20-30 per cent more cash than usual in case panicked customers tried to withdraw funds en masse. Banks are also holding daily emergency meetings to discuss other steps, including possible free overdrafts for customers reliant on social security payments from the government.” The problem with bank runs is that often times, steps taken to mitigate future panics become self-fulfilling prophecies. Hopefully this is not one of those cases. Then again, since increasingly fewer Americans actually have money in deposit and savings accounts with banks, there is likely nothing to worry about. –Zero Hedge 

No end in sight to shut down: Washington entered the fifth day of a partial government shutdown on Saturday with no end in sight even as another, more serious conflict over raising the nation’s borrowing authority started heating up. The U.S. House of Representatives prepared for a Saturday session but with no expectations of progress on either the shutdown or a measure to raise the nation’s $16.7 trillion debt ceiling. Congress must act by October 17 in order to avoid a government debt default. Republican House Speaker John Boehner tried on Friday to squelch reports that he would ease the way to a debt ceiling increase, stressing that Republicans would continue to insist on budget cuts as a condition of raising the borrowing authority. On the shutdown, Boehner said Republicans were holding firm in their demand that in exchange for passing a bill to fund and reopen the government, President Barack Obama and his Democrats must agree to delay implementation of Obama’s health care law. The launch date for Obamacare health insurance exchanges came and went on October 1, meaning Republicans are now in a more difficult political position of trying to stop something that has already begun. Although essential government functions like national security and air traffic control continue, the economic and policy effects of the shutdown are amplified the longer hundreds of thousands of federal workers remain at home and unpaid.

Negotiations on tax and free trade treaties are on hold, enforcement of sanctions against Iran and Syria are being hindered, and a government tester of dangerous consumer products spends his days at home. Nerves and sometimes tempers frayed on Friday after several weeks of long sessions of Congress and non-stop posturing. “This isn’t some damn game,” said Boehner, responding to a Wall Street Journal article that quoted an unidentified White House official saying Democrats were “winning” the shutdown battle. The Democratic president reiterated that he was willing to negotiate with Republicans, but said, “We can’t do it with a gun held to the head of the American people. There’s no winning when families don’t have certainty over whether they’re going to get paid or not,” Obama told reporters when he visited a downtown Washington lunch spot that was offering a discount to furloughed federal government workers. The shutdown began on Tuesday when the Republican-led House of Representatives refused to approve a bill funding the government unless it included measures designed to delay or defund key provisions of Obama’s signature legislation, the 2010 Affordable Care Act, which are now being implemented. –Reuters