As debt deadline looms, contingency plans in the works

CBS

Updated at 11:50 a.m. ET

With the clock ticking toward the potential of government default, some in Washington and Wall Street are reportedly crafting contingency plans in the event Congress can't forge a deal to reduce the deficit and raise the debt ceiling by Aug. 2.

Even though lawmakers have less than two weeks to raise the $14.3 trillion debt ceiling, progress has been slow-going.

The Senate today is taking up the House-passed "cut, cap and balance" bill -- the Republican plan to make raising the debt ceiling contingent on passing a balanced budget amendment. Senate Majority Leader Harry Reid schedule a vote on the bill for Saturday, even though he said this morning, "Republicans' so-called Cut, Cap and Balance plan doesn't have one chance in a million of passing the Senate."

As August 2 approaches, the Federal Reserve is huddling with the Treasury Department so they're prepared if the U.S. runs out of cash, a Fed policymaker told Reuters.

"We are in contingency planning mode," said Charles Plosser, president of the Philadelphia Federal Reserve Bank. "We are all engaged. ... It's a very active process."

The Fed, which serves as the Treasury's bank, would take steps like notifying the Treasury about which checks could clear and which couldn't if the debt ceiling weren't raised.

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Investors and Wall Street workers are also considering the consequences of the U.S. breaking its debt ceiling, the New York Times reports. If the U.S. lost its AAA rating, for instance, some insurance companies, pension funds and mutual funds could be forced to dump Treasury holdings since their rules dictate they're not allowed to hold assets rated below AAA.

Meanwhile, some lawmakers, including President Obama have expressed hope they could reach a deal based on a plan put forward by so-called "gang of six" bipartisan senators. The deal would reduce the deficit by nearly $4 trillion, and at least 15 Republican senators signed a letter yesterday saying they'd support the plan, CBS News Capitol Hill correspondent Nancy Cordes reports. Still, liberals are upset $500 billion in cuts to health programs -- while conservatives are rejecting the proposal to raise tax revenue from scaling back tax deductions and closing tax loopholes.

There are no congressional votes on the "gang of six" plan scheduled yet.

Amending the "gang of six" plan so that it includes all the desired elements of a "grand bargain" to raise the debt ceiling could take longer than a couple of weeks -- so even the White House has admitted it has its own contingency plans. White House Press Secretary Jay Carney said yesterday Mr. Obama could sign a bill to extend the debt limit for a few days, if Congress needed extra time to finalize a larger deal.

Rep. Steny Hoyer of Maryland, the No. 2 Democrat in the House, said today he's hopeful House Speaker John Beohner can "lead his party toward [a deal] in cooperation with the president of the United States, with the leadership of both parties in the United States Senate and the leadership of my party in our House."

For his part, Boehner said today, "the ball continues to be in the president's court, and it's been there for some time. If we're going to prevent default and prevent a downgrade of our credit rating... he needs to step up."

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War of words over the debt

[sjc_1]

I would like to see the Republican voting record for the last 12 years on ceilings and budgets. I bet you would find the same people voted for Bush's deficit budgets and debt ceiling increases that are now complaining.

[sandiegopete]

I have been reading the Congressional Record from 1993 to see what the debate was like for the Clinton tax increases. Same stuff that we are hearing today. Here is an example from 8/6/1993:

Mr. ARMEY. Mr. Speaker, last night the Democrats passed a retroactive tax increase to pay for hyperactive spending. The deluge of callers jamming Washington's switchboards, the bipartisan coalition of 216 Members of this body, and anyone with common sense, understands you reduce a spending deficit by spending less.
However, 218 Members thought the obvious was insufficient. They voted instead to increase taxes, to increase spending, and to leave the deficit right where it is. In fact at the same time they turned economics on its head, they voted to turn back time too. They did this by voting to increase taxes retroactively.
This retroactive tax increase means that if you think you have set aside enough for Uncle Sam, you better think again. The problem has never been that America is undertaxed. The problem is that Washington has spent everything that America has sent them and more. Retroactive taxes will not solve the problems of hyperactive spending. That fact will not change with last night's vote.

As we know, following the tax increases the economy took off, many jobs were created and the total debt went down. It is no surprise that Armey continues to get it wrong.

[ky1946]

If the ones commenting had read the article, they would find alternate plans being conceived. We are not going to default. The POTUS said he would step in and extend on a short term basis if 'The Plan' was not in place in time. The government is going to decide which bills have to be paid first and which they can delay.
Either way, there will be something done. I just don't want something approved that can't be amended (improved on). We do need some long term plan. Submit something that goes past the 2012 election and quit using b.s. and politics to get reelected

[retiredgustav]

Whe george bush was president, we NEVER had to raise the debt ceiling and we ALWAYS had a balanced budget. At least that is what FOX would have you believe.

[CMMV]

the dept ceiling was raised 7 time during the Bush admin.
and with Obama, the repulicans drag their sorry butts.
when are the democrats going to "just say no".
stand up for your country you slugs and do sommething.

[karlejohn]

I hope and pray that Our President raise the budget himself without congress. Let us settle this in the Surpreme Court. The Americans people are with you Mr. President!

[Progress4U]

That's what I say..."Go ahead and sue me!"

[kevjustice]

if the worst happens and millions do not get their ss check i would like to see those millions of seniors meet at grover nordquists house to... well...you can imagine what. anybody know his address?

[Birdman04]

I say take both sides and sit them down and ram bamboo shoots under their finger nails till they learn to act like adults and negotiate, compromise and find solutions instead of posturing to the masses like two year old's. Neither side has all the answers, neither side has the cure for what ails us.

[SparkysMom]

Look under the carpet of lies. The Republican-led House of Representatives is holding Average Americans as hostages, using this moment to take away from the future of Medicare and Social Security. They will not budge an inch. Remember that folks. Remember who did this to the middle class when the next election comes along.

[stuwerb]

Congress threatening to cause our nation to default on its debt is a spectacle that makes me ashamed to be an American. [Another such occasion is when a state such as Texas is still debating the validity of the theory of evolution.]

[Molly-Pchr]

Tea Party is killing the Republican party. I'm an independent, and although I have more often voted republican, I can't anymore. They (Republicans) are impotent while they are being dragged around by these tea cakes. The tea cakes are uncompromising, therefore, unable to govern, and tyrannical.

[1pheasant1]

by Excalibrationist July 21, 2011 12:36 PM EDT

This morning, I have emailed the three senators who represent our state.

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Librationist, you couldn't have e-mailed the three Senators that represent your state. You are clueless.