How Debt Ceiling Talks Play Out On Wall Street

Wall Street Journal economics editor David Wessel talks about where we are in terms of the U.S. credit rating and whether it may be downgraded.

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It's MORNING EDITION, from NPR News. I'm Steve Inskeep.

MARY LOUISE KELLY, host:

And I'm Mary Louise Kelly.

All this morning, we've been tracking the latest on the debt ceiling standoff. There appears to be some movement on Capitol Hill. Leaders in both the House and the Senate say they plan to introduce bills today, but what happens next is far from clear.

Well, for a sense of how all of this is playing out on Wall Street, we turn now to David Wessel. He's our regular guest and economics editor of the Wall Street Journal.

Good morning, David.

Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning.

KELLY: So let me start there. How are the markets looking this morning?

Mr. WESSEL: Well, they're not looking too happy. But if it's going to take a crash of the stock market to get Congress to come to terms, we don't have that yet.

Where we see the trouble is in all these really arcane money markets, where -which depend on the U.S. Treasuries, and they're definitely showing some signs of strain. Billions of dollars are leaving money market funds, for instance, because people are afraid of what'll happen.

KELLY: OK. I mean, I wonder - you said if it's going to take a crash to get Washington to do something. Is this a case where you've got, you know, Washington watching Wall Street to see how bad things might get, you know, whether failure to reach a deal might really send the U.S. economy off a cliff, as everyone fears? At the same time, Wall Street watching Washington to see just how bad things might get here.

Mr. WESSEL: Yes. I think that's a pretty good description of what's going on. It looks like Wall Street, for some time, if at all, they'll work it out. There just is a lot of theater, and they'll come to a conclusion at the end. I think you're beginning to see, in the last couple of days, some second thoughts on Wall Street and saying, oh, my gosh. Is the unthinkable now thinkable? Are these guys nuts enough to drive the car off the cliff?

KELLY: David, where are we in terms of the U.S. credit rating and whether it may be downgraded amidst all this?

Mr. WESSEL: I think it's highly likely that at least one of the rating agencies, Standard & Poor's, will downgrade the U.S. from its triple-A status to double-A status.

KELLY: Even if a deal is reached on the debt.

Mr. WESSEL: Correct. So that would put us in the company of Slovenia. What Standard & Poor's have said is they're worried not only about the debt ceiling and default, which would be a real problem, but they're also worried about the inability of the political system to deal with a long-run deficit issue.

And that - dealing with a long-run issue is pretty much off the table now. No one's talking about entitlements or taxes at the moment. And so it's likely that they'll raise the debt ceiling, get through this thing. And Standard & Poor's, sometime in the next few weeks, will say: Well, you've got a big problem and you've got to fix it, and the debt - the credit rating will be downgraded.

I personally don't think that's such a big deal. I think the problem is the problem. The credit rating isn't the problem. But some people disagree.

KELLY: One other thing to ask you about, which is there was some talk earlier in the week about whether the August 2nd deadline was as firm as the White House and some others have said it is. Is there any wiggle room there in terms of when the U.S. might run out of money to pay its bills?

Mr. WESSEL: That - the markets say that if you look at the daily tax receipts, that the Treasury has somewhat more money coming in over the last couple of weeks than had been anticipated. So that would suggest that they'll have a little more cash.

But the Treasury has said that's just not - that there's not enough money there to make a big difference. The U.S. government today has less cash in the bank than Apple Computer has in the bank, and they're facing, next week, a period of time where they're going to have more bills coming in than they have revenues coming in. And they may decide to conserve cash by not paying all the bills, even if they have the cash in the bank to do so.

So they have a lot of control, here, and no one knows what they're going to do. And they're being very coy. They're not saying what they're going to do.

KELLY: And I guess the big question is, you know, as we head into the weekend, trying - I'm sure there will be tremendous pressure - there already is, of course - but tremendous pressure to try to come up with some sort of deal before markets start opening Monday morning.

Mr. WESSEL: Yeah. So our - what we usually say before Asia opens Sunday night. I think that that's what the president was saying in his press conference, where he sort of abandoned the partisan rhetoric of earlier in the week and kind of pleading with people to act like grown-ups. And there is some sign that some of the - some people on the Hill are beginning to look at it the same way.

KELLY: All right. Thanks very much, David.

Mr. WESSEL: You're welcome.

KELLY: That's the Wall Street Journal's David Wessel.

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