Top Wall Street executives are warning that any effort to pay interest on U.S. debt before other obligations such as Social Security, a strategy some lawmakers think would placate bond investors if the government breaches its borrowing limit, would pose severe risks to financial markets and the economy, the Wall Street Journal reported today. In recent meetings with Republican lawmakers and Obama administration officials, chief executives of the nation's largest financial institutions said that putting some payments ahead of others would create insurmountable uncertainty for investors, drive up borrowing costs and cause market disruptions. The Wall Street pushback against an idea backed by the House GOP is part of an effort to force a resolution on raising the nation's borrowing limit, which the Treasury has said it expects to reach by mid-October. If no deal is reached, many outside observers, including debt-ratings firms, assume the government would begin prioritizing payments to bondholders over others, such as Social Security recipients or veterans, rather than risk defaulting on U.S. debt. (Subscription required.)
http://online.wsj.com/article/SB100014240527023044414045791218034903670…
In related news, China and Japan, which together hold more than $2.4 trillion in U.S. Treasuries, raised pressure on the U.S. to resolve a political impasse on its debt ceiling that threatens to destabilize global financial markets, Bloomberg News reported today. Japan must consider the impact of any default on its bond holdings, even as the U.S. will probably avoid a fiscal crisis, Japanese Finance Minister Taro Aso said. Chinese Deputy Finance Minister Zhu Guangyao said yesterday that the U.S. should prevent a default. Any failure by the U.S. to honor its debt obligations would damage the dollar’s status as the world’s reserve currency. A shift in asset allocation by China, Japan or other major holders of Treasuries could push up U.S. interest rates and cause swings in global currency markets.
http://www.bloomberg.com/news/print/2013-10-08/japan-aso-warns-on-effec…