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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