The U.S. Senate is scheduled to reconvene today at 12 p.m. and the DOW opened above 100 points signaling traders are optimistic the U.S. government will raise its debt ceiling and end the government shutdown. Yesterday, the DOW fell over 133 points after talks broke down to resolve the debt ceiling woes. If a deal is reached in the U.S. Senate as well as the U.S. House of Representatives, then the U.S. government will avoid the suggested default on its obligations and thereby avoid a credit downgrade.
What has leaked out before the 12 p.m. session is the federal government will be funded through January 15, 2014 and raise the debt ceiling through February 7, 2013 while also calling for long term solutions to a federal budget. Details are expected to be release shortly after 12 p.m. today. It is not clear at this point how the U.S. House will react to the proposal after it halted a vote on their own deal when it became clear the it did not have enough votes last night to pass a Republican proposal. U.S. House Speaker John Boehner has said he would bring what plan the Senate passes to a vote, regardless of whether it includes the removal of funding for ObamaCare. The U.S. House has passed resolutions and budgets throughout this process only to be stopped by Senate Majority Leader Harry Reid who would not allow a vote on their passed legislation.
The focus of the debate has been that Republicans want any deal of new spending to be met with equal or more spending cuts and eventual balance the federal government's books because they feel the U.S. government is on an unsustainable financial path. According to the Congressional Budget Office, “Additional spending would contribute to rising budget deficits starting in a few years, causing federal debt to swell from a level that is already Very high relative to the size of the economy. Under current law, debt held by the public would rise slightly relative to GDP in 2014 and then, because of smaller deficits, decrease to 68 percent of GDP by 2018. Around 2020, with deficits growing again, debt would begin to rise faster than GDP. By 2038, under the extended baseline, federal debt held by the public would reach 100 percent of GDP — nearly equal to the percentage just after World War II and almost triple the percentage in 2007—and would be on an upward path. That trajectory for federal debt would ultimately be unsustainable.”
Speaking about President Obama, U.S. Senator Rand Paul said on Sunday in an interview with CNN's Candy Crowley, "It's irresponsible for him to scare people. He should be the opposite. The leader of the country should be soothing the markets and saying we will always pay the interest on our debt." Paul has also been critical of Senate Democrats in their efforts to block the reopening of the federal government which is contrary to the message Harry Reid puts forth in his press conferences.
The White House has repeatedly warned of the potential consequences of passing the deadline to raise the debt limit. Last week, Obama accused Republicans of saying if they don’t get “100% of their way” in the current negotiations, “they are going to default on America’s debt so that America for the first time in history does not pay its bills." While Obama was saying this he was also just as rigid saying he was not willing to negotiate. So to say the stalemate was all on Republicans is not being accurate - both parties are at fault for putting America's credit rating at risk.
Some feel America's financial situation is more serious and intricate, whether an agreement is reached or not. Libertarian billionaire Jim Rogers said over the weekend in an interview with Barrons, "This is the first time in recorded history that we have all the major central banks, all the major governments actively debasing their currencies. Japan has said it will print unlimited amounts of money. So Ben Bernanke said, "Wait a minute, we can throw in a trillion dollars a year." And the Europeans said they'll do "whatever it takes." There's a gigantic ocean of liquidity, and the people getting that liquidity are having a wonderful time. But it's totally artificial, and it's going to end badly when it ends, I assure you."