President Barack Obama’s Democrats and their Republican rivals were further apart than ever yesterday in an impasse over America’s debt limit as Wall Street braced for a looming U.S. default and credit downgrade.
One week before a deadline to act, the two sides pursued competing budget plans that appeared to have little chance of winning broad congressional approval. There was no compromise in sight to raise the nation’s $14.3 trillion debt ceiling by Aug. 2 to avert a default that could trigger global financial chaos.
With politicians in Washington starkly at odds, corporate America was growing increasingly nervous. Credit rating agencies have threatened to cut America’s top-notch AAA bond rating if an increase in the debt limit is not accompanied by a plan for controlling long-term deficits.
A default and downgrade could push the United States back into recession and send shock waves through global markets.
Wall Street banks are preparing for the real possibility that the United States will lose its top credit rating, which they say will cost the country $100 billion in additional interest payments and hurt both consumers and the economy.
“That’s a negative for growth,” Mike Hanson, senior U.S. economist at Bank of America Merrill Lynch, told reporters on a call organized by a Wall Street trade group, the Securities Industry and Financial Markets Association.