Wall Street fears go beyond US govt shutdown

If the debt ceiling is not raised by then,the Treasury will be left with about only $30 billion.

New York | Published: October 4, 2013 3:49 am

With Washington preoccupied by the government shutdown,Wall Street is shifting its attention to an even more worrisome situation: the possibility that the US government could run out of money within the next few weeks,forcing an unprecedented default on its debt.

The Treasury said last week that Congress had until October 17 to raise the limit on how much the federal government could borrow or risk leaving the country on the precipice of default. If the debt ceiling is not raised by then,the Treasury estimates it will be left with about only $30 billion in cash,which would be used up in a matter of days. As a result,economists and investors have quietly begun to explore the options the White House might have in the event US Congress fails to act. The most widely discussed strategy would be for President Barack Obama to invoke authority under the 14th Amendment.

Other potential October surprises range from the logistically forbidding,like prioritising payments,issuing iou’s or selling off gold and other assets,to more fanciful ideas,like minting a trillion-dollar platinum coin.

So far,administration officials have continued to insist that there is no plausible alternative to Congressional action on the debt limit.

Some observers outside government in Washington and on Wall Street,citing a game theory-like approach,suggest that the president’s position is more tactical than fundamental,since raising the possibility of a way out for the White House like the constitutional gambit would take the heat off Republicans in Congress to act on its own before the October 17 deadline.

“If a default is imminent,the option of raising the debt limit by executive fiat has to be on the table,” said Greg Valliere,chief political strategist at Potomac Research. “Desperate times require desperate measures.”

Some professional investors echoed his view,which is a reason Wall Street remains hopeful that the economic and financial disaster a government default could usher in will be avoided.

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