U.S. banks have abandoned some of the investments, preferring instead to increase cash reserves. All because of fears that U.S. officials will fail to reach an agreement on raising the debt ceiling.
Americans have less than a week to resolve the situation that brought the country on the verge of entry into default. On August 2, the Treasury is running out of room and the default could no longer be avoided. Officials involved in negotiations to raise the debt threshold do not seem to make any progress, the discussions being often closed because of their refusal to reach a compromise.
In this context, everyone – investors on Wall Street, Federal Reserve, U.S. Treasury, opposition and, more recently, even President Barack Obama – are looking to developing a “plan B”. For banks, backup strategy means increased cash reserves, avoid investments that have a high degree of risk and ensuring long-term funding, informs British newspaper “Financial Times”. The situation is compounded by the possibility that the United States will lose “AAA” rating (best possible), a scenario that seems more likely.
According to a survey by Reuters news agency among many economists, the U.S. rating would be decreased by at least one of the three credit rating agencies. Also, there is a 20% probability of the country to enter into a new recession in the next year.
U.S. public debt reached the maximum – 14,300 billion dollars – on May 16. To prevent entry into default, the Treasury turned to some fiscal trisck (including suspension of payments to two pension funds). On August 2, it will remain without room for maneuver. Normally, the procedure for raising the debt ceiling is simple. From 1900 and until now, Congress has done this 84 times. Now, the stakes became a political battle between Republicans and Democrats.