Senate Democrats are preparing a bill to raise the US federal government´s debt- limit with no strings attached, the Washington Post reported on Wednesday evening. As well, remarks from some high-ranking officials in Washington D.C. would seem to indicate that President Obama might be willing to accept a temporary increase in the federal government´s debt limit before the hypothetical October 17th deadline. However, credit rating downgrades could ensue if things are taken too far.
For some observers that may be a gambit to force the US House of Representatives to vote on a similar motion and for the Republican speaker of the lower chamber, John Boehner, to prove that there are indeed not sufficient Republicans to back and approve such a motion without concessions from Democrats.
US sovereign credit rating downgrades one possible scenario
Of interest, Bill Hubard - Chief Economist at Markets.com - today explained to clients that whereas the US Treasury can simply decide to roll over the $93bn of T-bills which come due on October 24th, given that those instruments are owned, in large part, by US domestic banks and money market funds, doing so with the $153bn in T-bills maturing on October 31st would be much harder.
That is because foreign investors are more involved in the latter and are less used to rolling over their exposure. As well, "[by this time] we will have 'possible' credit downgrades and frightened investors rushing to sell their holdings in US Treasuries, Hubard pointed out.
Some analysts, on the other hand, have held out the option that the Treasury could re-prioritise some of its expenditures, although economic growth would take a severe hit.
At least on paper the conservative party holds sway in the House, by a majority of 232 Republicans to 200 Democrats. However, in recent days some reports have indicated that a small minority of Republicans might be willing not to toe the party line and throw in their support for the Democratic party´s attempts to pass a budget for 2014 and raise the debt limit.
Not to be lost sight of, today´s Washington Post article drew an immediate response from Republican Senator John Cornyn, who "tweeted" that: "We have lots of great amendments if Senator Reid tries to move a "clean" debt ceiling increase."
Obama might be willing to accept a temporary hike in the debt-limit
Also worth noting, that same report cited Gene Sperling, the director of the National Economic Council, as saying that members of Congress ultimately have the responsibility to decide how often they want to raise the debt ceiling, although he argued that an extended hike is preferable.
That may mean, the same newspaper muses, that President Obama would be willing to accept a temporary reprieve - in the for a temporary debt-limit hike.
The US Treasury on Monday afternoon auctioned $35bn in three month T-bills at a rate of 0.035%, versus the 0.010% seen the last time around. The associated bid-to-cover ratio worsened modestly, to 3.88, from 4.57 last time.