STEVE CHIOTAKIS: There are a couple of developments today in the fight between the White House and the Republicans to raise the nation’s debt ceiling. Grover Norquist, who runs the organization Americans for Tax Reform, said today getting rid of the Bush tax cuts on wealthy Americans does not constitute a tax hike. Which means GOP members who signed his no new tax pledge wouldn’t betray it by nixing those tax cuts.
But House Speaker John Boehner said just moments ago he’s still not on board getting rid of those cuts. Also, the U.S. Chamber of Commerce, known for its pro-business, low-tax stance is also calling for an agreement by the deadline, August 2.
Meanwhile, some financial firms are preparing for the worst-case scenario: a default. Which would make it much more expensive for the U.S. to borrow money by issuing bonds — or Treasuries.
Louise Story is a business reporter with the New York Times. She wrote about it today. Hi Louise.
LOUISE STORY: Hi there.
CHIOTAKIS: So we’re coming down to the wire here. How was Wall Street planning for some sort of default?
STORY: They are no longer assuming that Congress is going to reach a deal and that this isn’t going to happen. Banks are looking at the treasuries that they hold and they’re trying to get out of shorter term treasuries. You’ve got mutual funds who own a ton of treasuries saying, “Gee are we going to have to sell these,” and evaluating their rules. Sometimes the rules say if something is rated triple-A and it’s downgraded you have to sell. So you’ve got a lot of people looking at their holdings and saying what will we do if there is a downgrade or a default.
CHIOTAKIS: I know Louise, treasuries play a huge role in how Wall Street sort of deals from day to day. If the United States defaults, does that change the way, do you think, that Wall Street works?
STORY: It very well might because you know, on Wall Street, treasuries are like a currency. And so instead of passing around dollars, in a lot of transactions, they’re passing around treasuries because treasuries have long been assumed to be basically risk-free. Will they stop accepting treasuries as this sort of currency and instead will they demand dollars, or gold or what will they demand? What will they consider to be virtually risk free if the treasury is not?
CHIOTAKIS: How does the average person get affected by any of this?
STORY: Well you know everyone has investments or many people have investments in pension funds. And a lot of these pension funds are invested in treasuries. More over, the average person has to take out a mortgage and borrow on credit cards and those rates are all tied to the ability of the United States to borrow money. And so if investors around the world say “United States, we want more interest to lend money to you,” that will likely drive to the entire economy and affect your credit card rate and your mortgage rate.
CHIOTAKIS: Louise Story, business reporter for the New York Times. Louise thank you.
STORY: Thank you.
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