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Entries in Debt Limit (18)

Thursday
Jan262012

Senate OKs Rise in Debt Ceiling

Architect of the Capitol(WASHINGTON) -- The  debt ceiling will rise once again -- this time by $1.2 trillion -- after the Senate Thursday blocked a resolution that would have denied President Obama an increase. The increase is enough to keep the government running and paying its bills through November 2012.

This increase would raise the U.S. government’s credit limit to $16.394 trillion. According to the U.S. Bureau of Economic Analysis, the current U.S. gross domestic product sits at $15.176 trillion.

And although it may appear, and Sen. Kay Hutchison, R-Texas said Thursday on the Senate floor, that the debt was at more than 100 percent of the current U.S. GDP, according to the Office of Management and Budget, the outstanding debt held by the public is currently estimated at 72 percent of the GDP.

The only time the U.S. has owed more than it took in was during 1945 and 1946.

Congress had 15 days following the president’s request to increase the debt limit to vote on a resolution of disapproval, as per the Budget Control Act passed by Congress last August.

The resolution, which passed the Republican-led House of Representatives last week, was voted down Thursday by the Senate by 52 to 44, with four GOP members not voting.  Even if the Senate had passed the resolution that would have denied the debt ceiling increase, it was expected that the president would have vetoed it.

With only one Republican, Sen. Scott Brown, R-Mass., voting with Democrats to filibuster the motion, Republican senators upheld Senate Minority Leader Mitch McConnell’s promise of sending “a simple message to the White House: No more blank checks.”

“Washington needs to start spending less than it takes in,” McConnell, R-Ky., said. “And our future will always be uncertain and our economy in danger as long as the president fails to lead on this crucial issue.”

Sen. Tom Coburn, R-Okla., one of many Republicans to speak in favor of the resolution, said it was no wonder Americans were “disgusted with Congress.”

“A debt limit doesn’t mean anything in this country, because every time we come up to the debt limit, what we do is just pass it rather than the things the American people have asked us to do,” Coburn said. “Shouldn’t we come together as men and women, Americans, not Democrats and Republicans, and say we’re going to do what we can do to assure the future of this country and quit thinking about the next election?”

Coburn added that “we ought to be doing what is needed. It’s called making priorities.”

Sen. Richard Durbin, D-Ill., said he agreed with Coburn’s call for bipartisanship and reining in the debt, but differed on how to go about it.

“What troubles me greatly is many of the same senators who are going to vote against the debt ceiling voted for the spending,” Durbin said. “They voted to spend the money knowing we didn’t have it....Don’t vote for the spending if you won’t vote for the borrowing, because we know now they are linked together.”

Two Democrats,  Sens. Joe Manchin, D-W. Va., and Ben Nelson, D-Neb., voted with Republicans to deny President Obama an increase.

Copyright 2012 ABC News Radio

Thursday
Jan122012

Obama Asks for $1.2 Trillion Debt-Limit Increase

SAUL LOEB/AFP/Getty Images(WASHINGTON) -- President Obama took the first step toward raising the debt limit again Thursday, officially asking Congress for a $1.2 trillion increase.

In a formal letter, the president informed the Speaker of the House that “further borrowing is required to meet existing commitments.”

The increase will occur unless the House and Senate pass a resolution against it, under the budget deal reached in August to prevent a government default. Congress now has 15 days to reject the request.

Republicans are expected to use the request as an opportunity to attack the president’s spending policies. “Washington’s mounting debt is a drag on our economic recovery, and this request is another reminder that the president has consistently punted on the tough choices needed to rein in the deficit and protect important programs for American seniors from going bankrupt,” a spokesman for House Speaker John Boehner, R-Ohio, said.

Copyright 2012 ABC News Radio 

Friday
Nov042011

US Approaches $15 Trillion Debt Limit

Adam Gault/Thinkstock(WASHINGTON) -- It will be the latest sobering economic milestone that few were hoping to see: The U.S. national debt -- any day now -- will soar above the $15 trillion mark.

As of press time, the total debt is $14.97 trillion, so moving beyond the symbolic $15 trillion is a foregone conclusion. When the unwelcome milestone is reached, it will come at a volatile time both in this country and abroad.

Across the Atlantic, President Obama is in Cannes, France, for the G-20 summit that takes place as Europe is trying to finalize a bailout for debt-ridden Greece.

Back on the homefront, Obama is preparing for a difficult re-election fight next year. Republican candidates from Mitt Romney to Herman Cain have pounced on the country’s economic woes in their bids to win the GOP nomination and the chance to oppose Obama. Anger over rising debt helped sweep Republicans into historic House majorities in the 2010 midterm elections. Meanwhile, the Occupy Wall Street protests directed at the nation’s financial inequalities continue to fester in cities across the country.

In Washington, a polarized Congress has ground to a halt in the dispute on how to jumpstart the economy and reduce the country’s deficits. Only a few months ago, the acrimonious debate on Capitol Hill about raising the debt ceiling -- a debate that almost caused the Treasury Department to default on its debts -- illustrated the enormous partisan divide that still shows no signs of improving.

The approaching $15 trillion debt milestone is not even the only piece of bad economic news for the country. The jobs report for October -- released Friday morning -- showed that U.S. employers added an estimated 80,000 jobs to their payrolls last month, worse than economists expected. The unemployment rate decreased to 9.0 percent, down from 9.1 percent a month earlier, small consolation for a nation still struggling to recover from a severe recession.

Copyright 2011 ABC News Radio

Tuesday
Aug022011

Debt Ceiling Raised, But Markets Still Depressed

Mario Tama/Getty Images(NEW YORK) -- After a multi-week fight in Congress over a potential default for the U.S. Treasury resolved with a last-minute increase in the nation’s debt ceiling, the stock market is turning to the dire economy the nation finds itself in.

Tuesday’s more than 2 percent drop in the Dow marks the eighth straight day of selling – the longest run of consecutive negative days since the worst part of the financial crisis (10/10/08). In that eight day period, the Dow has dropped by more than 850 points (-6.7%).

The broader S&P 500 has lost 6.8% (-90.97 points) during the past seven trading days (its consecutive string of negative days). With the close at 1254 for the S&P all the gains for the year have been erased.

Traders on Tuesday were focused on a morning report which showed American consumers were spending less during June – the biggest one month drop since 2009.

Much of the focus now turns to Friday’s jobs numbers: economists are betting that employers added 84,000 new jobs in July.

Copyright 2011 ABC News Radio

Monday
Aug012011

Geithner on Debt Deal: Don't Know If We Will Avoid Downgrade

Lauren Victoria Burke/ABC NEWS(WASHINGTON) -- Is a credit rating downgrade for the United States more likely because of the way the process surrounding the debt compromise unfolded in Washington?

“I don’t know,” Treasury Secretary Timothy Geithner told ABC News in an interview set to air on Good Morning America Tuesday morning. “It’s hard to tell. I think this is a good result but a terrible process. And again…as the world watched Congress step up to the edge of the abyss it made them really wonder whether this place can work.”

Geithner called the debt deal “a good agreement” and said it benefits the economy in the “long term” because it will force Congress to make tough choices.

But what about the short term? Asked to respond to critics who say it could cost American jobs, Geithner said, “No, it will not.”

Will it create jobs for some of the 25 million Americans looking for work?  

“No, this agreement itself, on its own, doesn’t create jobs,” he said. “What it does is it avoids doing more damage in the short term, because the president refused to accept the types of deep spending cuts that many in Congress wanted, and it -- by locking in some long term savings it raises -- it improves the odds over time.”

Copyright 2011 ABC News Radio

Thursday
Jul282011

Will U.S. Default? $4.8 Billion Investment Says Yes

Comstock Images/Thinkstock(WASHINGTON) -- Investors are spending $4.8 billion to hedge against the possibility that credit rating agencies will downgrade U.S. debt -- or worse, that the U.S. actually will default. Doomsayers predict these and other dire consequences if Congress fails to act by August 2 to raise the nation's debt ceiling.

Rating agency Standard & Poor's earlier in July warned the U.S. that it risks a downgrade of its top AAA rating to AA status, unless Congress lifts the $14.3 trillion ceiling and reduces total debt by $4 trillion over 10 years. In April, the agency lowered its rating outlook for the U.S. from "stable" to "negative."

Investors worried at the prospect of a U.S. downgrade or default could protect themselves several ways, say experts. Joe Magyer, senior analyst at the financial website Motley Fool, says an investor could go entirely to cash. Otis C. Casey, director of credit research for Markit, a financial information services company, says an investor could unload any U.S. debt he might own and move into some other safe-haven asset, such as gold, the price of which has recently hit record highs on fears over the debt fight.

A person also could invest in a mutual fund, the return for which goes up when U.S. treasuries go down. Such funds allow investors to bet against U.S. debt.

Big institutions and the most sophisticated investors use credit-default swaps (CDS), which act like insurance policies against the deterioration of debt, be it corporate or the debt of a sovereign nation. If the debt is downgraded or if the borrower defaults, a swap makes the debt-holder whole again.
The amount of money in U.S. credit-default swaps increased 57 percent this year to $4.8 billion, according to the Depository Trust & Clearing Corp, which provides clearing, settlement and information services.

Any increase in the price of a swap is a sign of investors' declining confidence in the soundness of the underlying debt. Casey, for that reason, calls swaps early warning indicators. As Congress has continued to wrestle over raising the debt ceiling, the price of U.S. swaps has risen.
Suppose that August 2 arrives, and that Congress fails to act. What happens then to holders of U.S. debt?

"Some people have speculated," says Casey, "that there are so few safe havens for investors that U.S. bonds might actually benefit if the debt ceiling isn't raised." Panicky investors, in other words, might flock to U.S. treasuries as their least-bad option. "That," says Casey, "would be the ultimate irony.”

Copyright 2011 ABC News Radio

Thursday
Jul282011

Debt Crisis Survival Guide for Investors

Comstock/Thinkstock(WASHINGTON) -- As the Treasury Department's Aug. 2 deadline to raise the debt ceiling draws near, the fear is that if a deal is not struck in the next few days, the U.S. could default on its debt.

But even if a compromise is reached, many analysts believe that credit agencies could still downgrade the country's AAA rating.

A short-term solution would likely result in a downgrade, according to Citibank, which warned its customers that "the kick the can down the road path ... would not impress the ratings agencies."

If a downgrade occurs, it could cost more to borrow, and there could be a negative effect on the markets.  Analysts forecast up to a 10 percent drop in the stock market as a result of a downgrade.

How does this translate?  An average 401(k) of $140,000 would lose $9,000.  Mortgage rates would likely rise at least a half point.  The average home loan of $172,000 would see a hike of $19,000.

ABC News spoke with four financial experts, and here are their recommendations on how to survive the debt crisis:

What advice do you have for investors?

"Investors should stay the course and not let their emotions get the better of them.  Keep saving, pouring money into your IRAs and 401(k)s, and stay invested in stocks.  Invest for the long-term, not the next week," said Joe Magyer, senior analyst at the Motley Fool.

"You have to give some emphasis for being prepared for difficulty.  That means diversification.  You shouldn't bet heavily on one scenario.  Don't invest heavily in situations where it's a coin toss of win or loss, big winner or big loser.  Rather, invest in things that will do OK in a variety of scenarios," said Howard Marks, chairman of Oaktree Capital Management.  "Invest in companies that are not highly cyclical or highly levered.  Food/beverage/drugs, for instance, are inherently noncyclical industries.  Auto/heavy manufacturing/paper/steel, for example, are highly cyclical industries with their fates tied to the economy."

"Nobody has a crystal ball and can predict market movements with precision.  We are encouraging investors to maintain a balanced, diversified portfolio and keep a long-term perspective," advises Vanguard, America's largest 401(k) manager.

What advice do you have for investors who can't take a 10 percent hit?

"Investors can always go to cash if they're looking to avoid taking a big hit.  And if you think you can't sustain more than a 10 percent loss with your assets, then you probably shouldn't be in anything where that can happen, namely the stock market," said Magyer.  "I think selling now is reasonable if you can't sustain more than a 10 percent loss in the market. ... I understand why some people are concerned, the threat of a downgrade let alone a default is real and the impact will be painful, but I don't think the best play is to go completely conservative. ... I do think that blue chip stocks are the best play over the long-term for patient investors, particularly for retirees. ... The last place I'd want to be right now is a lot of the high-flying IPOs that have been out, so LinkedIn, Pandora, Zillow, each of those are ridiculously priced."

"If you are a small investor, there is absolutely nothing wrong with moving to the sidelines on a short-term basis to wait till the dust settles," said Hugh Johnson, chief economist at Johnson Advisors.

"We believe that market movements should not dictate your investment strategy.  If you are nervous about the stock market and are unable to withstand a severe decline, consider selling down to your sleeping point.  In other words, adjust your stock position to a level that enables you to sleep at night, but it should be a modest (not dramatic) adjustment.  But to re-emphasize, most investors should stay the course," said Vanguard.

Copyright 2011 ABC News Radio

Monday
Jul252011

Debt Debate: What Can You Do to Protect Your Money?

Comstock/Thinkstock(NEW YORK) -- The phones were hot Monday at America's largest 401(k) manager, Vanguard, in Philadelphia.  Main Street was calling Wall Street to ask what a deadbeat government would mean to their future.

"By and large," said Karin Risi of Vanguard, the biggest question is: What should I do with my portfolio? Should I get out? Should I reduce my equity exposure?

The stakes are high, and Americans know it. Stocks fell almost one percent Monday.

"Why are we even talking about a potential risk to the U.S. credit rating?" asked Kenneth Polcari of ICAP Equities on the floor of the New York Stock Exchange.  "This should not have happened."

Even if Washington avoids an actual default with a short-term solution, that could still be expensive, with credit agencies downgrading America's AAA rating, which would cost banks and then everyone more to borrow. Citibank is warning its customers, "The kick the can down the road path," now option A in Washington, "would not impress the ratings agencies."

"If they downgrade the U.S. Treasury, that will be the most significant downgrade in the history of rating agencies," said Jim Kessler of Third Way, a non-partisan economic think tank in Washington, D.C.

What would the downgrade alone mean to you?

Analysts forecast a six-percent drop in the stock market. The average 401(k) of $140,000 would lose $9,000. Mortgage rates would likely rise at least a half-point. That's a $19,000 hike on the average $172,000 home loan. And the overall economy would be hit with a one-percent drop in GNP, translating into 640,000 lost jobs. And that's just the immediate damage.

"I would compare it to a marriage where one spouse cheats on the other," Kessler said. "The marriage may survive, but it will never be the same again.  And if there is a downgrade on U.S. treasuries, our economy will survive but it will never be the same again, as well."

So should you move your money?

Several analysts told ABC News that, no, it's best to ride it out because it's too difficult to know when to get back into the market. But if you are just too nervous, foreign bonds in stable countries like Germany or Switzerland may be somewhere to ride the storm.

Copyright 2011 ABC News Radio

Monday
Jul252011

Gold Rises, Stocks Fall over US Debt Impasse

Medioimages/Photodisc(NEW YORK) -- Gold and the Swiss franc appeared the only winners Monday, as Washington's ongoing impasse over the U.S. debt ceiling continued to depress markets.

At midday, stock markets in the U.S., Asia and Europe were all down -- the S&P 500 by 0.47 percent, the Nikkei by 0.81 percent. Gold, however, rose 0.81 percent, and futures for the precious metal hit a new record of $1,624.30 an ounce. The Swiss franc gained 2.1 percent against the dollar.

U.S. Treasuries showed surprising resiliency, with the yield on 10-year Treasuries rising to 2.98 percent. Some observers took that as a sign that fears of financial catastrophe had been exaggerated. Guy Lebas, a fixed income strategist at Janney Montgomery Scott in Philadelphia, told Bloomberg he'd expect to see a bigger move if something "truly catastrophic" was on the horizon.

Meantime, a gridlocked U.S. capitol entered its last full week of negotiations before the Aug. 2 deadline for raising the nation's debt ceiling. Earlier in the day, Secretary of State Hillary Clinton, in Hong Kong, sought to reassure Asian nations of the U.S. economy's health, reminding them that the country has recovered from such instability in the past. Clinton predicted that a debt ceiling deal would be reached before the Aug. 2 deadline to avoid an unprecedented default.

It is feared that if an agreement is not reached, the United States could lose its triple-A credit rating.

Copyright 2011 ABC News Radio

Monday
Jul252011

Asian Markets Sluggish on Debt Deal Uncertainty

Comstock Images/Thinkstock(WASHINGTON) -- Asian markets fell Monday as worry widened over the inability of U.S. political leaders to reach an agreement over raising the debt limit and avoiding an impending default as the Aug. 2 deadline draws near.

The debt dilemma has led oil prices to dive below $99 a barrel amid belief that the demand for crude oil will be reduced.

In Hong Kong, Secretary of State Hillary Clinton appealed to Asian nations that they should hold their faith in the U.S. economy, reminding them that the county has recovered from such instability in the past. Clinton predicted that a debt ceiling deal would be reached before the Aug. 2 deadline to avoid an unprecedented default.

It is feared that if an agreement is not reached, the United States could lose its triple-A credit rating.

"The political wrangling in Washington is intense right now," Clinton said. "But these kinds of debates have been a constant in our political life throughout the history of our republic. And sometimes, they are messy.

"I am confident that Congress will do the right thing and secure a deal on the debt ceiling, and work with President Obama to take the steps necessary to improve our long-term fiscal outlook."

Democrats are currently ironing out a deal that would have $2.7 trillion in cuts over the next 10 years, no tax increases and a debt ceiling increase (of $2.4 billion) that would last until 2013.

The Republican two step plan would see $1.2 trillion in cuts now, and a debt ceiling increase of about $1 trillion, or enough to last until February 2012. For the second step, a bipartisan committee would be created to identify another $1.8 trillion in cuts. After these cuts are approved, the debt ceiling would then be extended until 2013.

Ongoing bipartisan talks over the debt ceiling broke down over the weekend. Senate Majority Leader Harry Reid stated in a letter Sunday that the talks ended "over Republicans' continued insistence on a short-term raise of the debt ceiling."

As negotiations continue on Capitol Hill, gold is now trading at a record price ($1,613 per troy ounce) and the dollar is dropping against other currencies.

Copyright 2011 ABC News Radio







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