An anxious world watches as Congress and the White House debate lifting the U.S. government's $14.3 trillion debt ceiling by Aug. 2, with failure to meet that deadline see as a default.
Leaders from bother parties agree that not raising the ceiling would be bad for the economy, so why the nail-biter?
Missing the deadline would roil capital markets, and the anxiety gives lawmakers wiggle room to cut a deal with terms that their constituents wouldn't like, analysts say.
|(Getty Images photo)
"Without a clear pathway to agreement on raising the debt ceiling, we note the increasing likelihood that Congress may need a catalyst, such as a negative market reaction to the debt ceiling debate, to force it to cut a deal," says FBR Capital’s Ed Mills, who puts a 25 percent chance at a deal not being reached by the Aug. 2 deadline, CNBC reports.
"It appears increasingly likely that neither side will be willing to concede ground until it is unavoidably clear that a crisis is imminent."
The country has seen this game of chicken play out before, with compromise coming just after a dreaded deadline.
"If you recall, TARP — first vote failed, market tanked; Second vote successful, so there is precedent," says Alec Levine, associate director of listed derivative sales and strategy at Newedge Group, according to CNBC.
"Passing TARP a day or two later made no difference because ultimately, its passage was all that mattered," says Dan Greenhaus, chief global strategist for BTIG.
U.S. bondholders remain nervous, especially the Chinese government.
"We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors," says China Foreign Ministry spokesman Hong Lei, according to Reuters.
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